Sembmarine expects ‘significantly better’ H1, yet to feel inflation’s heat 

SEMBCORP Marine (Sembmarine) has yet to feel the heat from elevated prices on its businesses as a vast majority of its projects are near completion, according to its president and chief executive Wong Weng Sun.

“(However), going forward, we are mindful and aware of potential inflation. So, in a way, we cost up our projects as well as the bidding price of our projects to factor in inflation to the extent we consider appropriate,” he said at a media and analyst briefing on Sembmarine’s first-quarter business update on Wednesday (May 18).

“For new projects, as we work towards converting actively some of our pipeline potentially into orders, we do have inflation taken into consideration. To the extent (that’s) workable, there will be within the tender specs, such inflation impact taken into account as well. It is important especially for new projects that we are tendering,” he added.

In its interim business update released on Wednesday, the offshore and marine stalwart said its net order book stood at S$1.75 billion as at end Q1 FY2022. Of this, S$1.51 billion involve projects under execution (with a total original contract sum of S$5.45 billion) while ongoing repairs and upgrades projects stood at the tune of S$240 million. Renewables and cleaner/green solutions comprise some 65 per cent of its net order book.

The group started the year with a total of 17 projects under execution, with 12 projects scheduled for completion and delivery in FY2022. Six of the 12 projects have been completed year-to-date.

Wong added that the completion of the projects has helped improve the group’s gearing position.

“When we complete our projects, we also collect the associated completion payments in cash. So cash numbers go up and our gearing improves. (But) In terms of profitability impact, it (impact of project completion) will be lesser,” he said, adding however that depending on final outcome of completion negotiation with customers, there may arise some adjustments which could have a positive impact on profitability.

Sembmarine’s net debt to equity ratio has improved to 0.38 times at end Q1 from 0.49 times at the end of Q4.

The company said it is expecting a “significantly better” financial performance for its upcoming half-year results due to new contract and order developments as well as an improving industry outlook for oil and gas, renewables and other green solutions. The group added that it is actively responding to new opportunities and is focused on converting its orders pipeline into firm contracts in FY2022.

Sembmarine’s stock price has lost ground since it, together with Keppel Corp, revealed details of a mega merger of their offshore and marine businesses some 3 weeks ago to create a global offshore powerhouse valued at S$8.7 billion to tap the green energy boom. Over the period to Wednesday’s midday session, the counter is down S$0.033 or 25 per cent at S$0.098.

When asked to comment on the stock’s weak showing, Wong replied: “It’s very much market players’ perception of the company and the developments surrounding it. What I can say is prior to the (merger) development, our share price was around S$0.08 and is presently above that. So directionally, we can say that the market has welcomed the merger.”

The proposed merger of Sembmarine and Keppel Offshore & Marine will have an indicative net order book of more than 50 jobs worth S$6.4 billion, of which some 25 per cent will comprise renewables and green solutions projects.

Based on FY2021 figures, the merged entity will have a pro forma revenue of S$3.9 billion and a net loss of S$1.3 billion.

An EGM (extraordinary general meeting) for Sembmarine shareholders to vote on the Sembmarine scheme and the proposed merger via a separate Keppel O&M scheme is expected to be convened in Q4 of 2022.

Temasek Holdings - which is set to become the largest shareholder of the combined entity with a 33.5 per cent stake - will abstain from voting in both schemes and all other resolutions relating to the proposed merger.

“Temasek joins both companies (Sembmarine and Keppel O&M) in asking for the support of their shareholders as the proposed combination is the best way to deliver long-term value creation for shareholders and other stakeholders,” said Sembmarine in its business update.

Shares of Sembmarine closed at 9.8 Singapore cents on Wednesday, up 0.2 cent or 2.1 per cent.