SembMarine shares tumble after earnings ‘significantly’ miss forecasts

Sembcorp Marine shares tumbled on Thursday after the company reported earnings that missed expectations.

The stock was down 6.28 percent at S$2.09 at 11:56 A.M. SGT on Thursday.

Sembcorp Marine reported first-quarter net profit of S$5.3 million, down 86 percent on-year on revenue of S$1.18 billion, up 58 percent on-year. Figures for the year-earlier period were restated due to accounting rule changes, the company noted in its filing to the SGX after the market close on Wednesday. SembMarine said that excluding the effects of the accounting changes, it would have reported a net loss of S$33 million for the quarter.

That was “significantly below” forecasts, OCBC said, noting net profit was just 7 percent of its full-year estimate and 8 percent of consensus’.

OCBC noted that the stock had been trading around 1.9 times price-to-book value, which it said was unjustified as when it previously traded at that level — in 2015 and 2009, return on equity (ROE) was at 20-30 percent.

“For ROE to return to 20 percent, we estimate net profit has to revert to at least S$500 million, which is unlikely even if we were to assume new orders of S$5 billion this year, as time is required for revenue to be booked for a unit under construction,” OCBC said, noting it expected around S$3 billion of new orders this year and next.

But OCBC added that the stock was likely getting a “scarcity premium.”

“SMM is the only large cap oil and gas pure play in the Singapore space and hence a likely favourite for investors wishing to gain exposure to rising oil prices,” OCBC said. “Its share price has been sensitive to oil price movements but at current price levels we think most of the
positives have been priced in.” It set a fair value of S$2.10.

Indeed, after the results, CGS-CIMB slashed its earnings per share (EPS) forecasts for 2018-2020 by 47-167 percent to factor in earnings before interest and taxes (EBIT) losses in 2018 and it lowered its EBIT margin expectations for 2019-2020. It cut its target price to S$2.52 from S$3.01.

But CGS-CIMB kept an Add call; “we believe a sustained oil price and contract wins could still keep interest in the stock.”

‘Sombre outlook’

Daiwa, however, said that forecasts were still likely “overly optimistic” on hopes for an earnings recovery story this year, particularly after SembMarine management issued a “sombre” outlook on potential losses ahead.

It noted that SembMarine has won new orders of around S$1.0 billion to S$1.2 billion this year, on track to meet its full-year forecast of S$3 billion.

But it had words of caution about SembMarine’s orderbook quality.

“While we hold similar expectations vs. the market in terms of SembMarine’s new order wins for 2018 (around S$3 billion to S$3.5 billion), where we differ would be in the quality of these new orders,” it said. “We expect new orders won by the company to be of a low-margin or loss-making nature due to unfamiliarity with the construction of such asset classes vs. market expectations for a strong rebound in earnings as evident in their 2018 forecasts.”

It kept a Hold rating on the stock.

The stock’s 200-day moving average at S$1.956 or its early March closing low of S$1.90 may offer near-term support.