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SembMarine posts fourth quarter net earnings of S$6m



SEMBCORP Marine's fourth-quarter net profit fell 95 per cent to S$5.9 million from S$117.3 million a year ago on continued low business volume, but nonetheless beat the expectations of most analysts, some of whom had projected losses.

They said the group's showing is "encouraging" and showed that its turnaround efforts are working.

Full-year net loss came in at S$74.1 million, better than analysts' consensus expectations of a net loss of about S$97 million.

SembMarine shares closed up 6.3 per cent at S$1.68 - the fifth most actively traded stock by value.

For Q4, earnings per share dropped to 0.28 Singapore cent, from 5.61 cents previously.

SembMarine did not declare any dividend for the full year, opting for "a prudent approach to conserving cash in light of the challenging business environment". It had paid out two Singapore cents a share the year before.

Still, much of the discussion at the results briefing circled around the recovery story - not just of the firm, but also the offshore and marine sector.

Group president & CEO Wong Weng Sun said offshore rigs utilisation and day rates for most segments have continued to stabilise or improve, supported by more drilling activities.

"Offshore capex spending continues to improve with more production projects moving towards final investment decision stage. While the overall industry outlook continues to improve, significant time and effort for project co-development with potential customers are required before new orders are secured, and competition remains intense."

The group's revenue for the three months to Dec 31 inched up 0.2 per cent to S$913.2 million, driven by the rig and floaters segment, which saw revenue grow 17 per cent to S$745.7 million.

Excluding non-recurring items - such as an accelerated depreciation of costs of the lease and assets at its Tanjong Kling Yard as well as impairment of assets - fourth-quarter net operating profit would have been S$23 million, compared with net operating losses of S$23 million, S$29 million, S$33 million and S$45 million, respectively for the preceding four quarters.

What helped bolster the net profit was also higher margin recognition from the newly secured floater projects and the write-back of provisions for completed projects.

Full-year revenue grew 61 per cent to S$4.9 billion, thanks to revenue recognition on delivery of seven jack-up rigs to Borr Drilling, one jack-up rig to BOT Lease Co, the sale of the West Rigel semisubmersible rig and revenue from newly secured projects.

OCBC Investment Research senior investment analyst Low Pei Han said what would catalyse the stock price is sustainable new orders.

"SembMarine mentioned that it is responding to increasing enquiries and tenders for innovative engineering solutions relating to offshore production units, but offshore rig orders will take some time to recover as the market remains oversupplied. In general the industry is improving, and the trend of better performance on the operating level for SembMarine continues."

Analysts share one concern regarding the company, though: its net gearing of 1.44 times as at end FY18, compared to 1.13 times as at end FY17.

"Considering that future new orders may have increased working capital needs (a response to constrained capital availability), and the group's current balance sheet position, SembMarine has to be selective when securing new orders, for instance, that they cannot have too unfavourable payment terms," Ms Low said.

William Goh, director of SembMarine's group finance, said at the briefing that he hopes to bring its gearing down to below one. One way is by collecting the balance of approximately S$1.2 billion of deferred payment for its 10 rigs inventory.

Its closest peer in Singapore, Keppel Corp, has a net gearing ratio of 0.48 time as at end-2018.

As part of its consolidation strategy, SembMarine will be moving all its operations from its Tanjong Kling Yard by end 2019, four years ahead of schedule, and return the premise to the state. It will relocate its corporate headquarters to Tuas Boulevard Yard in the first half of 2019. It will also review the schedule for returning its older yards in Singapore at or before their lease expiry dates.

Mr Goh said: "We are at a stage whereby things are stabilising and generally speaking, you'd expect that the level of orders will continue to flow in, so activity levels can go up, and then the top and bottom lines will cascade accordingly . . . At this stage of the recovery, yards are hungry, and therefore margins continue to be fine, but it has not gone back to its good old days."

SembMarine secured S$1.2 billion in new orders in FY18, bringing its net order book to S$6.2 billion, with completion and deliveries till 2021.

Looking ahead, SembMarine expects offshore production units to dominate orders pipeline, while the ship repairs and upgrades segment will stay "intensely competitive", although the market is expected to improve with higher work volume from new global regulations requiring the installation of ballast water treatment systems and gas scrubbers.