Today's Focus

• Sembcorp Marine - Huge provision drags FY15 into losses. Maintain FULLY VALUED; TP lowered to S$1.24 

Sembcorp Marine (SMM) swung into a net loss of S$537m for 4Q15, from net profit of S$178m a year ago. While lossmaking is expected, as guided in its profit warnings early Dec-2015, the provisions incurred were much bigger than expected, at >S$600m. S$329m for Sete projects and ~S$280m for other rigs. In addition, SMM shared net loss of approx S$150m from associate, Cosco. This was partially offset by tax credit of S$118m. Stripping these out, SMM would have reported core profits of approx S$100m in 4Q15. For FY15, SMM posted a net loss of S$290m, a far cry from S$560m net profits in FY14. Core net profit would have been positive at S$384m. SMM declared 2 Scts final dividend, bringing full year DPS to 6 Scts, down from 13 Scts p.a. in the past three years. This translates to 4% yield and works out to be 33% payout ratio based on core profit, down from the average of 50% previously. We cut FY16- 17F earnings by 33-37% after pushing back the delivery timelines of Sete Brasil projects and lowering EBIT margins by up to 1.4ppt. Reiterate FULLY VALUED on SMM with a lower TP of S$1.24 (Prev S$1.35) based on 1.0x FY16 P/B, reflecting the fall in book value post provisions.

Cosco posted a net loss of S$484m in 4Q15, bringing full year losses to S$570m. In 4Q15, Cosco made impairment/provisions of S$305m for bad debt, S$289m for inventories and S$42m for cost overrun, totaling S$636m. Net gearing stood at an alarmingly high level of 3.7x as of end Dec-2015, from 2.2x a quarter ago, arising from the deferments and deteriorating payment term, aggravated by the impaired book value.

Mermaid issued a profit warning, guiding for full-year losses for FY15, mainly attributable to significant non-cash provisions for impairment on the value of key assets, investments in subsidiaries as well as share of loss in an associate investment. This implies a big kitchen sinking impairment exercise on both its own subsea vessels and tender rigs as well as drilling rig associate AOD, on the back of challenging industry environment amidst the weak oil prices. Mermaid reported net earnings of US$16.3m in 9M15.


Source: DBS