SembCorp Marine

From TA point of view, we had witnessed a Gapped down yesterday + high volume and closed lowered at $1.83, this is rather negative.

The current pric of $1.83 is hovering near the major support at $1.80/$1.81.
If this level is broken down, then it would be super bearish and may continue to slide down further towards $1.75 then $1.70 with extension to 1.60 level.

The company has started buying back share yesterday. 300,000 share bought back at an average price of $1.845.

http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&B=AnnouncementLast12Months&F=VB64DDHNBB2R9SDW&H=449a854ad4e71919b41a0fed34f32334f01d3989639662211572fe679024f6d1

quote from DBS : Earnings revisions. Headline losses amounted to S$50m in 1H18. We had expected SMM to be in the red for 1H18 but it seems like revenue and margin recovery will take longer than expected. There is also a lack of visibility for the write-back of cost overruns for disputed variation orders in 2017 (which we estimated to be around S$100m) as negotiations with customers continue. As such, we have lowered our EBIT margin by 1.4ppt in FY18 and pushed back revenue recognition in FY19 given the slow contract wins in 1H18. Our net profit forecast for FY18-19 is reduced from S$54-126m to S$16-64m.

 SMM secured S$730m new orders in 1H18. The contract value for Shell Vito’s Floating Production unit clinched in May2018 was lower than expected at c.S$250m (vs our estimate of S$400m) as customer decided to procure some of the equipment themselves

 1) Potential first customer for SMM’s Gravifloat LNG exporting Terminal - Poly-GCL has reached an agreement with Djibouti on plans for a cross-country pipeline in May. This indicates positive progress of the gas development project and a step closer to finalisation of the Gravifloat contract that is expected to worth c.S$1bn;

2 Seaone’s preliminary study for compressed gas liquid carrier is near completion. Once customer decides to proceed with FID, SMM could secure contract for two such carriers worth a total of S$800m;

 3) Chevron is expected to award the contract for newbuild FPSO that could worth up to US$2bn for its Rosebank project off UK by 3Q18. SMM is competing against the other three Korean peers for the job.

 https://www1.dbsvonline.com/DBSVReport/2018/07/20180723134817_SMM%20-%201H18.pdf

Valuation: Our target price of S$2.50 is based on 2.1x FY18 P/BV, pegged to 0.75SD below its mean valuation since 2004. SMM’s book value has already been written down after the massive S$609m provisions taken in FY15.

 Key Risks to Our View: Key downside risks are sustained low oil prices which would affect rig count and newbuilding activities, execution risks in new product types, and corruption allegations in Brazil that, if found guilty, could lead to financial and reputational loss. Upside risk could come from privatisation or M&A activities, as well as the write-back of provisions from successful deliveries or vessel sales

Looking through their financial numbers for the past five years, Net Income has been declining substantially from $560m in 2014 to a LOss of (78m).

Diluted EPS has been dropping from 19.2 cents to a negative 3.6 cents. This is rather bearish.

Short term wise, would not likely to see any much improvement in terms of their FY2018 result unless they are able to secure huge order to boost their revenue and net income level.

Not a call to buy or sell.

Please do your own due diligence.

 Sembcorp Marine Ltd, an investment holding company, provides offshore and marine engineering solutions worldwide. The company engages in the turnkey design, engineering, procurement, construction, and commissioning of offshore newbuilding and conversions, FSOs, FPSOs, FDPSOs, FPUs, MOPUs, gas terminals, FLNGs, FSRUs, jack-ups, semi-submersibles, drill ships, SSP solutions, TLPs, and SPARs. It also engages in the repair, refurbishment, retrofitting, life-extension, upgrading, and conversion of vessels, marine and offshore structures, LNG and LPG gas carriers, cruise ships, ferries, mega-yachts, floating production vessels, MODUs, tankers, containers, and cargo ships, as well as offers jumboization and dejumboization solutions. In addition, the company offers afloat and emergency repair, underwater cleaning and repair, main engine maintenance and repair, steel and pipe work, electrical and instrumentation repair, mechanical and motor rewind repair, tank cleaning, sludge and oily waste disposal, staging work, hydro jetting and hydro/vacuum blasting, riding crew and voyage repair, specialized workshop repair and reconditioning, vessel towage and port clearance arrangement, specialists service and navigation, automation, safety, and fire protection services. Further, it offers offshore platform solutions, such as integrated process; production, riser, and drilling; wellhead, power generation, manifold, and accommodation platforms; and wind-farm substations, as well as topside modules fabrication, installation, and integration. Additionally, it designs and builds sophisticated, specialized, gas value chain, ferry, RoPax, cruise, renewable energy and offshore support, naval support and security, and research and scientific survey vessels. The company was formerly known as Jurong Shipyard Ltd and changed its name to Sembcorp Marine Ltd in 2000. The company was founded in 1963 and is headquartered in Singapore. Sembcorp Marine Ltd. is a subsidiary of Sembcorp Industries Ltd.