Sembcorp Marine could score slightly higher margins in 4Q12

New order flows also looking positive.

Here's more from Maybank Kim Eng:

Below expectations due to recognition timing. Sembcorp Marine's (SMM) 3Q12 results came in below our expectations with revenue of SGD892.4m (-31% YoY, -27% QoQ) and corresponding PATMI of SGD115.5m (-48% YoY, -19% QoQ). The lower performance was due to timing of recognition wherein only one jackup unit achieved initial percentage of completion revenue recognition. We expect revenue and profit to be back-end loaded in 4Q12 with more initial recognitions of jackup units and its first Sete Brasil drillship contract. 

Margins came in stronger. 3Q12 operating margin did turn up sequentially higher to 14.1%. Stripping out forex effects, operating margin would have been 15.5%, in line with our expectations. We believe that SMM would be able to achieve slightly higher margins for 4Q12, with some potential variation orders. But this could be partially offset by more conservative margins for the first Sete Brasil drillship contract in which SMM aims to achieve initial recognition in 4Q12.

Order flow remains strong and healthy. YTD orders secured amounted to SGD9.1b and net orderbook now stands at record of SGD12.1b with deliveries till 2019. We remain optimistic of new order flows given strong market fundamentals and healthy customer enquiries.

New yard to add to ship repair volume. Phase one of new Tuas yard would be operational in 2013. The increased capacity of 1.55m dwt would support more ship repair business. Based on preliminary guidance, ship repair revenue could possibly be bumped up to SGD1.1-1.2b p.a. in FY14F, from usual levels of about SGD650m p.a.

Trimming forecasts. 3Q12 numbers differ from our expectations mainly due to project recognition timing. We adjust our project recognition schedule and trim FY12-14F margin assumptions by 0.2-1.2ppt for conservative sake. Corresponding net profits are consequently reduced by 3.6-7.2%.