The shipbuilder reported wider than expected losses which could refloat privatisation rumours.
DBS analyst Pei Hwa Ho noted that with the exception of 4Q2015, when earnings were hit by a one-off massive provision, Sembmarine has reported its first operating loss since 2004. Net loss amounted to $33.8m for 4Q2017. “Stripping out forex gains ($20m), tax credit ($19m), and inventory & work-in-progress write back ($32m), losses would have been $100m, a substantial portion of which we believe was attributable to expected cost overrun for several projects’ variation orders as customers have yet agreed to pay. We believe total cost overrun for disputed variation orders exceeded $100m last year.”
Ho noted that he expects gradual improvement. “We have slashed our FY2018/2019 forecasts by 54-58%. Taking the cue from 4Q2017, Sembmarine might continue to incur some losses in 1H2018 as revenue might remain low until major projects start to kick in, which will take one to two quarters to start being recognised. Hopefully, some of the cost overrun for disputed variation orders in 2017 could be recouped this year and better economies of scale from higher activity should be realized towards 2H2018. Orderbook stood at $7.58b, as at December 2017, with $1.1b for Borr Drilling (largely to be recognised in 2018) and 42% or $3.2b from the drillship projects with Sete Brasil (expect reactivation from 2019). The remaining $3.3b should largely be recognised in the next two years,” he added.
One bright spot for Sembcorp appears to be that they are seeing a higher enquiry level but competition is intense. “Management has seen increasing enquiries in the production segment but has cautioned that competition for orders remains intense. Its core focus continues to be on production-related and LNG solutions. Sembmarine started FEED study for Seaone’s compressed gas carrier in October 2017 and expects it to complete in 1H2018, following which, the customer will decide on FID for the project. Hence, if FID is achieved, the actual contract award for the two gas carriers estimated at$800m seems likely to skew towards 4Q2018 at the earliest,“ noted Ho.
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