Low profit margins spoil Sembcorp Marine’s hefty Maersk deal

The US$1b win won’t ward off deeper concerns.

Sembcorp Marine yesterday revealed that it has bagged an EPC project worth over US$1b from Maersk. Although the deal’s price tag was larger than expected, a closer look reveals that SembMarine might have to settle for lower-than-average profit margins compared to its traditional rig-building projects.

“We note the contract value includes equipment content, engineering & procurement components, and subcontracting of detailed engineering work. This implies that despite a higher contract value than its traditional rig-building projects, we think that operating margins could be lower than the 10-12% it has been generating,” Maybank Kim Eng said in a report.

Maybank Kim Eng also warned that the new deal will be insufficient to drive away deeper concerns plaguing SembMarine’s business.

 “While investors are likely to welcome the news, we see it as a lumpy win, as opposed to a turn in new-contract momentum. We also believe it is insufficient to ward off deeper concerns over an oversupplied rig market, weak drilling demand, deferred deliveries, its Brazil overhang and high capex needs,” the report noted.