Sembcorp Marine’s Q3 profit hit by 10% slip in ship repair revenue

Can a rebound occur in Q4?

Analysts remain cautious on Sembcorp Marine’s prospects in spite of the fact that the group’s net profit inched up 2% year-on-year to $132 million in Q3.

Sembmarine’s Q3 profit failed to live up to analysts’ expectations, on back of lower margins and muted ship-repair revenue.

According to OSK DMG, SembMarine’s 3Q14 disappointed as a new revenue recognition policy forced earlier bookings of low-margin procurement.

“With the new revenue recognition policy, and with more drillships and other repeat offshore projects to begin soon, the impact of low-margin procurement revenue is likely to hold down margins over the next few quarters. While we believe that margins should improve as SembMarine enters a steady-state on this large series of drillship orders, this is likely going to be in 2H15or 1H16,” stated OSK DMG.

Meanwhile, Maybank Kim Eng notes that although management guides for a jump in 4Q14 from three large
projects, one of which is worth at least SGD35m, this should just be a one-time boost.

“With the new revenue recognition policy, and with more drillships and other repeat offshore projects to begin soon, the impact of low-margin procurement revenue is likely to hold down margins over the next few quarters.

"While we believe that margins should improve as SembMarine enters a steady-state on this large series of drillship orders, this is likely going to be in 2H15or 1H16. While we concur with its outlook for production assets, we see risks to overall 2015 orders, especially for rigs,” noted Maybank Kim Eng.