• Better QoQ
• Rig market improving
• Interim div S$0.01/share

Better on a Sequential Basis

Sembcorp Marine (SMM) saw a 27.8% YoY drop in revenue to S$655.5m and a 51.2% fall in net profit to S$5.6m in 2Q17, dragged by foreign exchange losses of S$34.4m in the quarter. On a QoQ basis, revenue was 14% lower while estimated core net profit was higher at S$39.6m in 2Q17 vs. a core net loss of S$3.6m in 1Q17. Operating margin improved from 1.8% in 1Q17 to 4.3% in 2Q17; recall that 1Q was impacted by costs incurred for the Libra FPSO which is pending finalisation with the customer. Additional work scope requested by the customer for the P- 68 FPSO is expected to result in new work estimated to be at least US$100m.

Resumes Work for Transocean Drillships; Looking for Secondary Rig Sales

Transocean has requested SMM to actively resume work for its two drillships, and has paid a further 5% on both units. As for rigs that have been technically completed and accepted but whose deliveries have been deferred, a number of new potential customers have emerged and SMM is in discussions for them to acquire or take over delivery of these assets.

Active Enquiries Continue

SMM’s net order book stands at S$6.7b, or S$3.6b if the Sete Brasil drillships were to be excluded. YTD, new order flow is low at S$75m, but management is hopeful that this year’s new orders will surpass last year’s S$320m. Active enquiries continue for non-drilling solutions and SMM is in ongoing discussions with various parties for potential projects in the floaters, production platform, LNG and specialized shipbuilding segments.

The group is also in close discussions with several potential customers relating to near-shore gas infrastructure solutions using the Gravifloat technology, though it may take time for such efforts to translate into orders.

Meanwhile, the group has declared an interim dividend of S$0.01/share, vs. S$0.015/share last year. After tweaking our estimates, our FV slips slightly from S$2.01 to S$1.98 (still based on 1.6x FY17F P/B), but as we still see a 15% upside over a 12-month time frame, we maintain our BUY rating on the stock.

Source: OCBC Research - 28 Jul 2017