Brokers' Take

Sembcorp Marine | Neutral

Nov 6 close: S$3.59

Target price: S$3.60

Credit Suisse, Nov 6

SEMBCORP Marine's FY14 nine-month net profit of S$386 million was below expectations, at just 67 per cent of consensus FY14 forecast. Operating margin dropped to 10.0 per cent in Q3 FY14 from 11.5 per cent in Q2 FY14, as a change in accounting policy led to a negative mix effect.

The company revised its estimates to commence revenue recognition when activity milestones are established rather than achieving 20 per cent completion. Four projects achieved initial revenue recognition in Q3 FY14, including two Sete Brasil drillships which are 14 per cent and 23 per cent complete. We estimate that these low-margin drillships contributed 30-40 per cent to revenue in Q3 FY14, versus 10 per cent in H1 FY14. We reduce our 2015-16 estimated earnings per share by 5…