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SembMarine shares tumble on warning of bigger loss in H2

CEO projects full-year net loss to be similar in scale to last year's S$74m, despite smaller losses in Q2, H1

Sembcorp Marine's warning that 2019 will be another loss-making year sent its shares tumbling by almost 5 per cent on Tuesday.


SEMBCORP Marine's warning that 2019 will be another loss-making year sent its shares tumbling by almost 5 per cent on Tuesday.

The profit guidance also marked a reversal from president and CEO Wong Weng Sun's comments last year that 2019 could be the year when the shipbuilder and engineering group finally turned around.

Instead, Mr Wong said on Tuesday that with insufficient new orders secured in the last few quarters, the group is now expecting its net loss for the second-half year to be greater than the first six months' net loss of S$6.8 million. He also projected the full-year net loss to be similar in scale to last year's loss of S$74 million.

SembMarine's shares ended seven cents or 4.9 per cent lower at S$1.36 on a volume of 16.9 million units traded.

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At the company's briefing at its new Tuas Boulevard Yard, Mr Wong said that as at end-June, its net order book totalled S$5.27 billion, with completion and deliveries till 2021. But excluding the Sete drillship contracts, the net order book stands at only S$2.1 billion.

New orders secured in the first six months added up to S$175 million, comprising the design and construction of a 12,000-cubic-metre LNG bunker vessel as well as repair and modernisation works on 13 cruise ships.

"New orders traction in H1 2019 had been disappointing. This was due mainly to a tender cancellation arising from changes in project ownership, and delays in final investment decisions (FIDs) for several projects," he said. One of them is said to be Rosebank's floating production storage and offloading contract worth up to US$2 billion.

"With the recent strengthening of our financial position, our key priority is building up our order book. We have been actively responding to an increasing pipeline of tenders and enquiries for various engineering solutions and projects related to the production and gas value chain segments, as well as in specialised shipbuilding projects.

"We are also participating in front end engineering design (FEEDs) and pre-FEEDs requested by potential customers. We remain hopeful for securing new orders in the foreseeable quarters."

SembMarine on Tuesday posted a narrower second-quarter net loss of S$8.5 million, compared with S$55.6 million a year ago, on the back of continued low overall business volume.

This had impacted the absorption of overhead costs, offset by margin recognition from newly clinched production floater projects and rig delivery. The group also saw the accelerated depreciation of S$11 million booked for the second quarter, partly from its Tanjong Kling Yard, along with S$6 million tax credit booked for the same period.

For the three months ended June 30, the group's loss per share (LPS) stood at 0.41 cent, compared with 2.66 cents a year ago.

For the quarter, revenue fell 55.1 per cent to S$731.3 million, from S$1.63 billion a year ago, mainly due to lower recognition from rigs, floaters and offshore platform projects. Revenue for the rigs and floaters segment fell 61.1 per cent to S$542.4 million. That for the offshore platforms segment fell 60 per cent to S$34 million.

For the first half year, revenue fell 45.1 per cent to S$1.54 billion, from S$2.81 billion a year ago. Revenue for rigs and floaters fell 49.3 per cent to S$1.22 billion, due to revenue recognition on the delivery of jack-up rigs and the sale of a semi-submersible rig for the same period last year.

Asked about the delays in FIDs at the briefing, William Goh, director of group finance, said it is "very difficult to be very precise" which orders will come though in the second half, or in the first quarter of next year.

FEEDS and pre-FEEDS, especially exclusive ones where the customers are working only with SembMarine, and which are at the finalisation stage of technical specs and budget, have high chances of translating into orders, but he cannot estimate when that will happen.

Asked if the group might consider bidding for more projects or casting its nets wider to consider a broader range of projects, Mr Goh replied that the tenders the group participates in are already a few times more than the actual number of projects that it clinches.

"We do evaluate a lot more than what we anticipate would end up in our order book. The flip side of that is that we are also mindful that we can't be chasing whatever comes our way... If for various reasons we feel that they are not our likely target projects, we will actually not proceed, because every response to tender and request for quotation does cost financial resources as well as manpower."

Analysts generally did not take well to SembMarine's results and guidance.

CGS-CIMB analyst Lim Siew Khee called the results "disappointing", adding that she had not expected the lower guidance for the second half, as "most of the provisions were already taken in, and the loss-making projects were completed, and whatever they had in the order books were profitable".

Low Pei Han, senior research analyst at Bank of Singapore also said that the results were below her expectations of a net profit of S$10.1 million for FY19, versus the consensus view of S$12.4 million in net earnings for the year. "We expect further downward earnings revisions by the street post this set of results."

In a research note, Lim & Tan Securities likewise said: "With management's guidance for 2019 losses to be S$74 million (ie H2 2019 loss of S$67 million) and (SembMarine's) price-to-book at 1.3 times, we see little reason to bottom-fish the stock for now."

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