SembCorp Marine : Good Results but Catalysts Already in the Price

1Q09 results — Revenue reached S$1.4bn, (-16% qoq, +49% yoy), underpinned by strength from ship conversion/offshore (-25% qoq, +80% yoy) and rig building (-12% qoq, +57% yoy), thanks to a record delivery schedule this year. Ship repair was flat yoy while net profit reached S$120m, accounting for ~26% of our FY09 estimates. Gross margin was largely flat yoy despite an increased mix of offshore conversion projects during the quarter. SMM benefited from S$15m forex gain in 1Q09 (vs $6.3m losses in 1Q08).

Balance sheet — Net cash stood at S$1.9bn but operating cash flow deteriorated and reached $93m (vs. S$857m in 1Q08) due to higher working capital requirements. Capex commitment reached $26m and should increase to S$100-150m by end of the year.

Prospects — SMM now has S$8.4bn of orderbook to deliver till early 2012. Although macro outlook remains challenging, SMM does not rule out potential contract wins with Petrobras, particularly production units (fixed and floating). SMM is also targeting to forge more alliances to perform ship repair work with international shipping names (e.g., oil tankers). Currently, ~80% of ship repair revenue is generated from alliances.

Maintain Hold (2M) – SMM had executed well, capitalizing on the up-cycle, improving margins and visibility with record orderbook. However, the extent of the current downcycle and concerns over customer financing will continue to weigh on the stock.

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