DBS Equity Research: Wired Daily 2 Dec 2015

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Publish date: Thu, 03 Dec 2015, 10:27 AM

Sembcorp Marine - Guiding a net loss in 4Q15; downgrade to Fully Valued, TP S$1.85

Sembcorp Marine has issued profit warnings that it expects a net loss for 4Q15, resulting in a significant y-o-y profit decline in FY15. The challenging operating environment and project deferments were cited as key culprits. Separately, regarding the purported termination of the jackup rig contract with Marco Polo, SMM has demanded the latter to pay the overdue second disbursement of 10% of the contract price (US$21.43m) that has been deferred twice, as well as agreed interests.

We reckon the potential losses in 4Q15 are attributable to profit reversal and impairment for the 95% completed Marco Polo unit as well as prudent provisions for the higher risks of newbuild projects without back-to-back charter contracts. There may be more bad news to come - deferments, cancellations, asset deflation etc - in view of the prolonged oil crisis. Newbuild rig orders are unlikely to make a comeback any time soon as the rig supply glut will take time to be absorbed. The restructuring progress of SMM's single largest Brazilian customer Sete Brasil, who accounts for >40% of its orderbook, also appears slow and Petrobras' scandal continues to be an overhang. We are leaving our forecasts unchanged for now pending more colour on the provisions and delivery schedule. There is also downside risk to our existing DPS forecasts given the decline in earnings and rising gearing levels. We cut our TP to S$1.85 based on a lower 1.2x P/BV (from 1.5x P/BV) on the back of lower ROEs that is projected to fall into the low teens; the lower TP implies 11% potential downside. Downgrade to FULLY VALUED.

EMS Energyannounced that its 20%-owned associated company, Oilfield Services and Supplies (OSS), has submitted the pre-admission notification to Singapore Exchange Securities Trading Limited for a proposed listing on the Catalist Board of the SGX-ST. OSS and its subsidiaries are principally engaged in the distribution of downhole drilling products as well as the provision of precision machining and drilling services to the oil, gas, mining and exploration industries.

Singapore Exchange launched 11 stock indices tracking four key local themes: healthcare, real estate, minerals, oil & gas, and maritime & offshore. Two indices tracking real estate companies and real estate investment trusts (Reits) are considered tradeable. This means exchange-traded fund (ETF) providers could create products tracking these indices for investors to buy and sell on an exchange, to get exposure to a diversified portfolio of developers or Reits. The indices are almost all free float and market capitalisation weighted. The indices all have a base value of 1,000 points and are based from Sept 30, 2010, except for the SGX All Healthcare Index which is based from Dec 31, 2010. The base currency is the Singapore dollar.

Local firms in Singapore are increasingly more pessimistic due to falling global demand, depressing a widely-followed business confidence index into a contractionary zone for the first time in three years after it took a turn for the worse in the fourth quarter of 2015. According to Singapore Commercial Credit Bureau's (SCCB) latest quarterly Business Optimism Index (BOI) study, the index hit a historical low as it fell into negative territory of -2.93 percentage points for Q1 2016, from +0.14 percentage points for Q4 2015.

US stocks rose, bond yields fell and the USD weakened after the November ISM manufacturing figure unexpectedly contracted to 48.6 (consensus 50.2). The data fuelled expectation that the FED will hike rates at a very gradual pace once it starts. The 10-year treasury yield fell 6bps to 2.15%. Commodities edged higher on the weaker USD but oil price dipped 0.5% ahead of this week's OPEC meeting.

Source: DBS

Sembcorp Marine (S51)

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