Hot stock: SembMarine down 3% after reporting deeper Q3 loss; OCBC downgrade

SEMBCORP Marine (SembMarine) shares were down 3 per cent at Wednesday session's midday break following Q3 earnings that missed street estimates, and OCBC Investment Research lowering its fair value for the rig builder.

The offshore and marine player's stock opened at S$1.29, 3.7 per cent lower than Tuesday's closing price of S$1.34. But it managed to recover some of those losses to trade at S$1.30, four Singapore cents or 3 per cent lower.

On Wednesday, SembMarine posted a net loss for the July-September quarter of S$52.6 million, which sent net loss for the first nine months of FY2019 to S$59.5 million.

The group's revenue for Q3 fell 38.6 per cent to S$717.2 million, from S$1.17 billion a year ago, mainly due to lower revenue recognition from rigs and floaters projects.

Performance for both the quarter and the first nine months of the year missed street estimates.

Following the release of third-quarter results, OCBC analysts downgraded their recommendation on SembMarine to "sell" and lowered their fair value estimate for the rig builder from S$1.29 to S$1.24.

The research house said: "Despite improved margin recognition from recently secured production floater projects, nine-month operating loss was mainly due to continued low overall business volume and accelerated depreciation of S$30 million arising from the group's transformation and yard consolidation strategy, where SembMarine will relocate all operations from its Tanjong Kling Yard by end 2019 and realise cost savings estimated at S$48 million per annum from FY2020 onwards."

On outlook, SembMarine is expecting losses to continue into the fourth quarter, and the full-year loss to be higher than last year's. It added that challenges in the offshore and marine sector persist and competition remains intense.

Potential share catalysts include a rise in oil prices, better-than-expected new order flows at decent margins and corporate restructuring at parent Sembcorp Industries, OCBC said.