Sembcorp Marine eyes dividend cut

Deferment and cancellation risks remain prevalent in the current climate.

Following a disappointing set of 3Q16 results which swung into a loss of S$22m, DBS Group Research cut its FY16/17F earnings for Sembcorp Marine (SMM) by 55/27% to factor steep margin contraction.

"The interim dividend of 1.5 Scts paid in 3Q16 works out to be c.43% of our revised FY16 forecast. This raises some concerns on the final dividend," it said.

The research firm expects SMM to declare a final dividend of only 0.5 Scts as a token of appreciation to shareholders.

Moving forward, DBS Group Research expects SMM to continue to face challenging operating environment despite recent oil price recovery.

While SMM had made provisions of S$609m for 75% of the outstanding rig orders in FY15, DBS Group Research believes that additional provisions could still be required if the operating environment deteriorates further, especially in Brazil, which accounts for 35% of SMM’s orderbook.

"Deferment and cancellation risks remain prevalent in the current climate. The delivery of the deferred units (for Sete, Transocean, Oro Negro, Perisai, Seadrill) will have to come through to improve operating cash flow and lower its high net gearing of 1.0x," it said.