Sembcorp Marine (SMM) posted a 19.3% YoY rise in revenue to S$1.34b and a 5.4% increase in net profit to S$131.6m in 2Q14, such that 1H14 net profit accounted for only about 41% of ours and the street’s full year estimate, thus coming in below expectations. Ship repair was weaker than expected, mainly due to lower average revenue per vessel despite a higher turnover rate. Day rates in the ultra-deepwater and deepwater floater markets have softened, and there has been undeniably a more muted outlook for these segments in general. Currently, the jack-up market is still holding up, but the outlook may also be more muted in the shorter term. Even though 2H14 is likely to be stronger in terms of results, we deem it necessary to lower our FY14 earnings estimate by 7%. We also lower our P/E for the O&M segment ex Cosco from 15x to 14x due to the more muted new order outlook. As such, our fair value estimate slips from S$4.90 to S$4.36. Downgrade to HOLD.
2Q14 results below expectations
Sembcorp Marine (SMM) posted a 19.3% YoY rise in revenue to S$1.34b and a 5.4% increase in net profit to S$131.6m in 2Q14, such that 1H14 net profit accounted for only about 41% of ours and the street’s full year estimate, thus coming in below expectations. Group operating margin at 11.5% was slightly higher than the 11.1% seen in 1Q14, but lower than the 13.0% registered in 2Q13.
Ship repair disappoints again
In 2Q14, ship repair revenue saw a 5% YoY decrease in ship repair revenue to S$150m in the quarter despite the opening of the new integrated yard at the end of last year. This is weaker than expected – 1H14 ship repair came to about S$307m vs. our full year estimate of ~S$770m. The number of vessels repaired has increased from 176 in 1H13 to 226 in 1H14, but due to the weaker ship repair market, average revenue per vessel has gone down from S$1.8m to S$1.4m.
New order outlook- softer for now but positive over the longer term
As mentioned in our earlier report, day rates in the ultra-deepwater and deepwater floater markets have softened, and there has been undeniably a more muted outlook for these segments in general. Currently, the jack-up market is still holding up, but the outlook may now be more muted in the near term. Over the longer term, we remain positive about the industry’s fundamentals.
Downgrade to HOLD
YTD, SMM has been able to secure S$2.5b worth of new orders (vs. our FY14F estimate of S$4b), bringing its net order book to S$12.7b. Even though 2H14 is likely to be stronger in terms of results, we deem it necessary to lower our FY14 earnings estimate by 7%. We also lower our P/E for the O&M segment ex Cosco from 15x to 14x due to the more muted new order outlook. As such, our fair value estimate slips from S$4.90 to S$4.36. Downgrade to HOLD.
Sembcorp Marine (SMM) posted a 19.3% YoY rise in revenue to S$1.34b and a 5.4% increase in net profit to S$131.6m in 2Q14, such that 1H14 net profit accounted for only about 41% of ours and the street’s full year estimate, thus coming in below expectations. Group operating margin at 11.5% was slightly higher than the 11.1% seen in 1Q14, but lower than the 13.0% registered in 2Q13.
Ship repair disappoints again
In 2Q14, ship repair revenue saw a 5% YoY decrease in ship repair revenue to S$150m in the quarter despite the opening of the new integrated yard at the end of last year. This is weaker than expected – 1H14 ship repair came to about S$307m vs. our full year estimate of ~S$770m. The number of vessels repaired has increased from 176 in 1H13 to 226 in 1H14, but due to the weaker ship repair market, average revenue per vessel has gone down from S$1.8m to S$1.4m.
New order outlook- softer for now but positive over the longer term
As mentioned in our earlier report, day rates in the ultra-deepwater and deepwater floater markets have softened, and there has been undeniably a more muted outlook for these segments in general. Currently, the jack-up market is still holding up, but the outlook may now be more muted in the near term. Over the longer term, we remain positive about the industry’s fundamentals.
Downgrade to HOLD
YTD, SMM has been able to secure S$2.5b worth of new orders (vs. our FY14F estimate of S$4b), bringing its net order book to S$12.7b. Even though 2H14 is likely to be stronger in terms of results, we deem it necessary to lower our FY14 earnings estimate by 7%. We also lower our P/E for the O&M segment ex Cosco from 15x to 14x due to the more muted new order outlook. As such, our fair value estimate slips from S$4.90 to S$4.36. Downgrade to HOLD.
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