• Healthy results
• First drillship to be delayed
• Sete Brasil has not been paying

FY14 results in line

Sembcorp Marine (SMM) reported a 14.6% YoY drop in revenue to S$1.44b and a 4.6% fall in net profit to S$174.0m in the 4Q14, bringing full year net profit to S$560.1m, close to our full year estimate of S$556.5m. Operating margin was 16.1% in the quarter, higher than 4Q13’s 11.1%. On a full year basis, SMM achieved an operating margin of 12.1% vs 11.7% in FY13. After securing S$4.2b of new orders (excluding repair and upgrade) in FY14, the group’s net order book figure stands at S$11.4b.

First drillship likely to be delayed

According to management, drillship Arpoador is currently being towed to the new yard in Brazil despite having left Singapore in Nov last year. Difficulties in obtaining certain approvals and other matters resulted in the drillship being unable to enter the new yard as scheduled. Given the current situation, it is likely that the drillship is unable to be delivered around Jun/Jul as scheduled. Though there could be a grace period of a few months, we believe this would also be a stretch for SMM, which is currently doing a study to see how to accelerate the construction process.

Last payment from Sete was in Oct 2014

More worryingly, SMM has not received any payments from Sete Brasil for the past three months, resulting in about S$70-80m outstanding. The original agreement was for SMM to receive payments every month. Given the uncertainty in Brazil, it is not clear when payments would resume or worse still, if there would be order cancellations. Currently, more than 80% of the first drillship has been completed, followed by 70% for the second and about 30% for the third.

Maintain HOLD

SMM declared a final dividend of S$0.08/share for FY14, bringing the full year dividend to S$0.13/share. This amount is the same as FY13, though the mix was different then – S$0.05 interim, S$0.06 final and S$0.02 special. We fine-tune our estimates and lower our FY15 earnings estimate by about 4%, such that our fair value estimate slips from S$2.99 to S$2.95. Maintain HOLD.

Source: OCBC Research - 13 Feb 2015