Sembcorp Marine disappoints in Q2 amid weak ship repair revenues

Profits inched up but were below expectations.

Analysts remain unimpressed despite the fact that Sembcorp Marine posted a 5.4% increase in net profit for 2Q14 to S$131.6m. Sembcorp’s weakest link is its ship repair revenues, which dipped 5% year on year.

According to OCBC analyst Low Pei Han, Sembcorp Marine’s profit came in below expectations because ship repair was weaker than expected due to lower average revenue per vessel despite a higher turnover rate.

“Day rates in the ultra-deepwater and deepwater floater markets have softened, and there has been undeniably a more muted outlook for these segments in general. Currently, the jack-up market is still holding up, but the outlook may also be more muted in the shorter term,” she added.

Meanwhile, CIMB analyst Lim Siew Khee noted that average repair per vessel plunged to an all-time low of S$1.26m/repair, though repair margins were kept at 20-25%.

“With margin expansion and order momentum priced in, we think there is limited catalyst for stock
outperformance in the near term. The order book stands at S$12.7bn, with S$2.5bn new orders secured YTD,” she stated.

But a glimmer of hope comes from DBS’ Pei Hwa Ho, who notes that the second half of the year may bring good news for Sembcorp Marine.

According to DBS’ report, “We expect higher rigbuilding and repair revenue in the seasonally stronger 2H, with several newbuild and major repair projects hitting initial recognition. Margins should be supported by the higher revenue contribution from rigs using SMM’s proprietary Pacific Class design, ship repair segment and profit recognition from prudent margin projects.”