Highlights

Sembcorp Marine - 1H21 a Significant Loss Due to Provisions

Date: 30/07/2021

Source  :  UOB KayHian
Stock  :  Sembcorp Marine       Price Target  :  0.12      |      Price Call  :  HOLD
        Last Price  :  0.08      |      Upside/Downside  :  +0.04 (50.00%)
 


  • While we were prepared due to the profit warning, the magnitude of Sembcorp Marine’s S$647m loss for 1H21 was nevertheless shocking as it was 11% higher than the loss made for the whole of 2020.
  • Excluding post-tax provisions of S$472m, Sembcorp Marine nevertheless generated a loss of S$175m with the mild highlight being zero project cancellations year-to-date.
  • Maintain HOLD with a fair value of S$0.124.

Sembcorp Marine Reported 1H21 Net Loss of S$647m

  • Sembcorp Marine (SGX:S51) reported a pre-provision net loss of S$175m; however, including post-tax provisions of S$472m, its net loss blew out to S$647m vs the full-year loss of S$583m reported in 2020. At the top-line, Sembcorp Marine saw a 7% y-o-y decline in revenue to S$844m due to production delays as a result of COVID-19 restrictions.
  • The significantly higher provisions in 1H21 resulted mainly from COVID-19 as Sembcorp Marine had to factor in S$361m in additional labour and other costs to complete its suite of projects in hand. In addition, a further S$65m in yard reinstatement costs were provided for, as well as a S$46m asset impairment loss.

What Is There to Look Forward to for Sembcorp Marine?

  • Clearly, it will be critical for the company to successfully raise the much-needed S$1.5b via its rights issue. Apart from that, Sembcorp Marine management also talked about > 10 active tenders that it currently has for 10 renewable solutions, “multiple projects” within the FPSO/FSO/FPU segment as well as pre-Final Investment Decision engineering work for the deepwater Cambo field west of Shetland, United Kingdom.
  • Operationally, offshore platforms were the sole highlight with a 128% y-o-y increase in revenue to S$296m for 1H21. Three of the notable offshore-platform projects were related to offshore wind farms with ~34% of the company’s net orderbook related to green energy solutions.

Labour Continues to be An Issue

  • During the analyst briefing, Sembcorp Marine's management stated that there were no new workers from crucial piece of the puzzle remains a successful rights issue in 3Q21.

Downgrading Sembcorp Marine's Earnings Forecast for 2021

  • As a result of the poor comments during the analyst briefing, it currently does not foresee further provisions for the business in the near term. Our estimates for 2022 and 2023 remain unchanged.
  • Maintain HOLD call on Sembcorp Marine with an unchanged fair value of S$0.124 which equates to a P/B of 0.51x.
  • The company is currently trading at a 43% discount to its past 5-year average P/B of 0.89x which we view as warranted given the bearish backdrop of a lack of new orders from the offshore and marine sector, difficulty in obtaining an optimum level of workforce for its Tuas shipyard, and prospects for losses to continue into 2H21.

Sembcorp Marine's Share Price Catalyst

  • Successfully raising S$1.5b via its rights issue, which the company is targeting to complete by 3Q21.
  • New orders for rigs, offshore renewable installations or fabrication works.
  • Merger or JVs with other shipyards.
  • Tightening of inbound travel rules for Singapore, thus further crimping Sembcorp Marine’s access to labour.

Source: UOB Kay Hian Research - 30 Jul 2021

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