Brokers' take: 'Hold' Sembmarine on expectations of a slow recovery

ANALYSTS have called for a "hold" on Sembcorp Marine (Sembmarine) on expectations of a slow recovery after the shipbuilder posted a net loss of S$582.5 million for FY2020.

Both OCBC and CGS-CIMB believe that the share price of Sembmarine will fall, while UOB Kay Hian expects the counter to move up.

In a Tuesday note, OCBC raised its fair value to 14.5 Singapore cents from 14 cents against the last recorded share price of 15.2 cents, while maintaining a "hold" call on the counter.

"Outlook is challenging with the relatively low oil prices and one of the risks mentioned in our earlier reports (fundraising) has transpired," said the OCBC research team, which expects the losses to continue in FY2021.

The research team believes that risks such as lower than expected new order flows, risks relating to Brazil, and higher than expected capex requirements in the future will continue to hamper the company's growth.

Further, they opined that the group's financial position remains "tight and could limit the types of orders that the group can pursue" despite the recent rights issue, valuing the company at 0.5 times price to book ratio (P/B).

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CGS-CIMB was similarly conservative on Sembmarine, maintaining a "hold" call on the counter while raising target price to 14.1 cents, up from the previous 13.9 cents against last recorded share price of 15.5 cents.

In a report on Wednesday, analyst Lim Siew Khee estimated Sembmarine's order book to be S$1 billion in FY2021, noting that tender activities have improved significantly from Q4.

She also expected the group's losses to narrow in FY2021 as it begins to deliver projects under execution, with 11 out of 15 projects estimated to be delivered in FY2021.

Further, the analyst reduced her forecasts on earnings per share between FY2021 and FY2022 due to lower margins on jobs, but believes there is deep value and potential oil price proxy.

"Key downside risks include protracted order drought and cost overruns. Sizeable order wins could rerate the stock," said Ms Lim.

UOB Kay Hian on the hand, posted a more positive outlook on Sembmarine, upgrading the counter to "hold" with a higher target price of 16 cents, up from its previous target price of 12.5 cents in a research note on Wednesday.

Analyst Adrian Loh believes there are new opportunities for growth in light of the company's shift towards new areas of renewable energy, electrification, the gas value chain and storage solutions.

Additionally, he was positive of a strong order book as the group continues to focus on wind projects, coupled with better performance in its upgrade and repair business as the company did not reduce its headcount during Covid-19.

However, the analyst valued the company's P/B at 0.6 times, which represents a 30 per cent discount to its past five-year average P/B of 0.88 times, citing a bearish outlook in the offshore and marine sector.

"On the analysts' call, the management said that Sembmarine would return to profitability with an order book of S$2.5 billion to S$4 billion, depending on the size of each individual order and type of project," said Mr Loh.

Shares of Sembmarine closed at 15.2 cents on Wednesday, 1.9 per cent or 0.3 cent lower.