UPDATE: Daiwa: Temasek could push SembMarine and Keppel O&M to merge

Singapore five-dollar note Photo by Leslie Shaffer

This article was originally published Thursday, 1 August 2019 at 10:17 A.M. SGT; it has since been updated to include Temasek’s comment.

After Sembcorp Marine slipped back into losses for the second quarter, Daiwa said a “persistent lack of new orders” could spur a consolidation between the rigbuilder and peer, Keppel O&M, driven by their common shareholder, Singapore state-owned investment company Temasek.

In response to Shenton Wire’s request for comment from Temasek, the state-owned investment company said: “As a matter of policy, Temasek does not comment on market speculation and rumours.”

Keppel O&M and SembMarine didn’t immediately respond to Shenton Wire’s emailed requests for comment.

On Tuesday, Sembcorp Marine reported a second quarter net loss of S$8.5 million due to accelerated depreciation, but that was narrower than the S$55.6 million loss posted in the year-ago period.

The net loss for the quarter was mainly due to continued low overall business volume impacting the absorption of overhead costs, offset by margin recognition from newly secured production floater projects and the delivery of a rig, SembMarine said.

After the lack of new orders in the first half of the year, Daiwa said it was cutting its full-year new order assumption to S$1 billion from S$2 billion, although it kept its 2020 estimate at S$3 billion.

Daiwa cut its 2019-2021 revenue estimates by 4 percent to 11 percent on the weak new orders trend and it now expects 2019-20 earnings to be in the red, compared with previous forecasts for profits. It slashed its 2021 earnings per share forecast by 75 percent.

“We believe market’s optimism of an improving fundamental outlook will be seriously tested as new order wins continue to disappoint,” Daiwa said in a note Tuesday.

It cut its target price on the stock to S$1.48 from S$1.59, keeping a Hold call.

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