DBS still positive on SembMarine, but slashes earnings forecasts

A Singapore 10-dollar note Photo by Leslie Shaffer

DBS kept Sembcorp Marine at Buy, advising looking beyond the weak earnings, but slashed its forecasts and issued a note of caution.

”In the near term, we reckon that sentiment might be adversely affected by the wider-than-expected losses in the fourth quarter of 2017,” it said in a note on Thursday.

The rig builder said in an earnings release after the market close on Wednesday that it had a fourth-quarter net loss of S$33.8 million. DBS noted SembMarine posted only its second quarterly operating loss since 2004.

DBS took a red pen to its 2018-2019 earnings forecasts, lowering them by 54-58 percent to reflect the operating loss at currently activity level, and it cut its target price to S$2.90 from S$3.10.

The bank added that SembMarine could also incur some losses in the first half of this year as revenue could stay low until major projects start kicking in.

It also said the share was trading with an M&A premium it estimated at around 40 Singapore cents a share.

“This could be given back if privatisation rumour is off the table,” DBS said.

’Healthier entry point’

But the bank added that the stock’s pullback offered a “healthier entry point.”

”We continue to like Sembcorp Marine as a key proxy to the recovery in the oil and gas (O&G) and offshore and marine (O&M) sectors, with strong order wins as key re-rating catalyst,” DBS said.

DBS also noted a risk in Brazil, where corruption allegations over contract awards are under investigation.

SembMarine confirmed that a person has been charged by Brazilian authorities over alleged illegal payments tied to drillship contracts won by company units, the Straits Times reported on Thursday, but it noted that President and CEO Wong Weng Sun declined to provide more detail on that person’s relationship with the company.

According to the report, Wong said the company wasn’t aware of any of its employees being implicated.

Shares of SembMarine were down 7.22 percent at S$2.44 by 12:29 P.M. SGT. The stock may find support at the February 12 low of S$2.37.

Parent Sembcorp Industries saw its shares shed 2.07 percent to S$3.32 by 12:29 P.M. SGT.

A Singapore 10-dollar note
Photo by Leslie Shaffer