Citing industry challenges, management has guided for the possibility of negative operating profit ahead.
See: Sembcorp Marine reports lower 1Q earnings of $5.3 mil on lower contributions from platforms division, absence of one-off gain
In a Thursday report, OCBC analyst Low Pei Han says its results were significantly below expectations by the house and street, with 1Q net profit accounting for 7% and 8% of OCBC and the street’s full year estimate, respectively.
After the release of FY17 results in Feb, Low says analysts have already lowered their earnings forecasts, and consensus estimates of forward ROE is now 2.3% for FY18. However, she says there is a risk that these may be further lowered after the release of 1Q results.
“For ROE to return to 20%, we estimate net profit has to revert to at least $500 million, which is unlikely in the next 12 months even if we were to assume new orders of $5 billion this year, as time is required for revenue to be booked for a unit under construction,” says Low, who expects new orders of $3 billion this year and next.
OCBC has a “hold” on SembMarine and a fair value estimate of $2.10 based on 1.75 times FY18/19 book value.
Meanwhile, CIMB says SembMarine’s 1Q18 earnings formed just 8% of its full-year forecast and consensus.
The weak bottomline was due to the adoption of new accounting standards, SFRS (I) 15, for the delivery of a jackup for BOT Lease Co. (BOTL) in 1Q18 as the title was formally transferred.
Revenue was boosted to $1.18 billion and profits previously recognised in retained earnings were reversed in 1Q18. Without this, 1Q18 revenue was $858 million.
In a Wednesday report, CIMB analyst Lim Siew Khee says SembMarine’s share price may retreat in the near-term given the expectations of weak core earnings.
However, she believes a sustained oil price and contract wins could still keep interest in the stock.
“Catalysts could come from settlement of the sale of the West Rigel semisubmersible and stronger-than-expected order wins in 2018. Downside risks are weak order momentum and significant cost overrun on projects,” says Lim.
Year to date, SembMarine has secured $476 million of new orders versus CIMB’s $3 billion target.
“We are likely to hear of the finalisation of the contract from Shell for the Vito project as it achieved FID Final Investment Decision... We estimate the contract to be worth US$300 million-US$400 million. Order book stood at $4.59 billion as at end 1Q18,” says Low.
CIMB has an “add” with $2.52 target price.
As at 3.22pm, shares in SembMarine are trading 13 cents lower at $2.10 or nearly 70 times FY18 consolidated earnings.
