Sembcorp Marine

Kim Eng on 3 Aug 2012

Timing issues, not underperformance. Sembcorp Marine’s (SMM) reported PATMI of SGD142.8m (-5% YoY, +26% QoQ) for 2Q12, which came in lower than our expectations. We once again attribute the variance to timing of revenue recognition and not underperformance. We have lowered our FY12 figures while raising FY13 figures to re-adjust our assumed recognition schedule of its projects. SMM also declared an interim dividend of 5 cents per share. Maintain BUY and SOTP-based target price of SGD6.20.

Still confident of 14-15% operating margins. Operating margin for 2Q12 was slightly higher on a QoQ basis at 13.1% (12.8% in 1Q12). Excluding currency effects, operating margin for 2Q12 would have been 13.9%. Management expects margin to improve going into 2H12 and maintains its guidance for 14-15% operating margins for FY12. The lower margin for 1H12 was due to early phases of project executions in which recognition was more conservative. Going into 2H12, we expect margins to improve with more ship repair jobs, variation orders for projects near the tail-end and more aggressive recognition.

On course to meet order win assumptions. New orders secured YTD amounted to SGD3.1b against our SGD11.0b full-year forecast. Net orderbook stood at SGD6.6b with deliveries up till 2Q15. We believe that the anticipated USD4.0b (~SGD5.0b) drillship orders from Sete Brasil should be awarded soon and SMM is in the final stages of ironing out the terms of the contract. Taking into account the Sete Brasil orders, SMM would need to win another SGD2.9b in new orders to meet our forecast and we believe it is on course to do so.

Healthy enquiry pipelines, maintain BUY. According to SMM, there are healthy enquiries across all product segments. ASP has also showed some signs of improvement. We adjust our assumed project recognition schedule, resulting in a 13% cut in FY12F PATMI but a 3% rise in both FY13F and FY14F PATMI. Maintain BUY with SOTP-based target price of SGD6.20.