Nomura downgraded Sembcorp Marine to Neutral from Buy, pointing to a high cost base and a “painfully slow” order recovery.
“With new orders in 2018 year-to-date coming in at only S$730 million, we believe earnings both for 2018 and 2019 will remain under stress,” Nomura said in a note on Monday. “Amid slow new order momentum, SMM’s operating cost base remains high due to elevated
depreciation and finance costs.”
Last week, rigbuilder SembMarine reported a net loss of S$29.8 million for the third quarter, swinging from a year-earlier net profit of S$100.7 million, amid continued low overall business volume as the oil and gas sector remains sluggish
Nomura cut its earnings forecasts for 2018 and 2019 “sharply,” saying it only expected a return to profitability in 2020.
For 2018, Nomura now estimates a reported net loss of S$122 million Singapore dollars, from a previous forecast for a net profit of S$97 million. For 2019, Nomura estimated a net loss of S$47 million, compared with its previous forecast for a S$137 million net profit. For 2020, it forecast a net profit of S$30 million.
It cut its target price to S$1.80 from S$2.70.
Nomura said new order recovery has been weaker than it expected, amid project delays, competition from South Korean and Chinese yards and poor pricing.
“While hydrocarbon prices remain strong and capex continues to recover, we believe the recovery will continue, but at a slow pace,” Nomura said.
It assumed around S$2 billion and S$3 billion of new orders over 2019 and 2020, respectively.
But it noted that SembMarine’s gearing continues to rise, at 1.37 times from 1.1 times at the end of 2017.
“While we expect some improvement in 2019F on the debt situation, we doubt finance costs will decline substantially from here on and overall, expect gearing to remain elevated,” Nomura said.
Shares of SembMarine were up 0.62 percent at S$1.62 at 15:51 SGT.