Daiwa cuts SembMarine earnings forecasts amid ‘challenging’ environment

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Daiwa cut its earnings outlook for Sembcorp Marine, pointing to a “weak” second-quarter performance and a “challenging” environment.

“While we see SembMarine as a strong contender for a couple of major new orders, the company remains weak on fundamentals, as evidenced by its latest set of financial results,” Daiwa said in a note on Friday.

Daiwa cut its 2019-20 earnings per share forecasts by 11-12 percent on weaker margin expectations as it projected the challenging operating environment would persist.

SembMarine said on Friday that it swung to a net loss of S$55.6 million, worse than some analysts had expected, due to a S$27 million loss on the sale of the West Rigel rig and lower activity volume. In the year-earlier quarter, SembMarine had posted a net profit of S$5.1 million, it said.

Daiwa noted that the company also swung to an operating loss in the quarter due to a lack of revenue recognition for core project, amounting to only around S$572 million, excluding Borr contracts.

The bank said that was “significantly below” its estimated break-even run-rate of around S$3 billion needed for annual revenue recognition.

“We expect the operating environment to remain equally challenging heading into the second half of 2018 and expect the company to incur full-year pre-tax losses of S$69 million,” it said.

Daiwa said new order wins in the first half, at S$730 million, were tracking below its full-year order win assumption of S$3 billion, but it added the company could still land as much as around S$4 billion in new orders in the second half.

Daiwa trimmed its target to S$1.82 from S$1.83, keeping a Hold call.

The stock ended down 6.63 percent at S$1.83 on Monday.

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