Sembcorp Marine profits could rise 56% in 2019

With $2.5b in new orders pending, 2018 could be a big year.

The lull could finally be over for Sembcorp Marine if it manages to bag orders worth $3.5b in 2018 and see its profits increase 56% in 2019 to $136m, CIMB said.

Things look up for the firm because it is in the running for some sizeable projects, likely to be awarded in 2018. CIMB has factored in $2.5b new orders in 2018.

These include Shell’s Vito topside, and hull construction, estimated to be worth US$300m, Gravifloat FLNG for Polu-GCL, which could cost US$1b, and Maersk Oil’s gas processing and accommodation deck, which could be worth US$1b.

Moreover, if its actual orders reach $3.5b in 2018, CIMB forecasts its net profit in 2019 would be 15% higher than their estimate.

Here's more from CIMB:

We have factored in $2.5b of new orders for FY18. YTD, SMM has secured $270m of orders. This excludes the two Letters of Intent (LOIs) from SeaOne (c. US$500m for two Compressed Gas Liquid Carriers) and Statoil (c.US$490m for turnkey EPC of a newbuild FPSO hull and living quarters). Order book stood at S$1.4bn as at 3Q17, excluding Sete Brasil ($4.8b) and Borr Drilling’s rigs ($1.77b).

With more turnkey projects, we forecast EBIT margin of 5.7% and 7.6% in FY18 and FY19 respectively. This is lower than its historical average of 15% during the boom years of rig cycle.

Upside could come from stronger-than-expected ship repair volume, which typically fetches 20- 25% EBIT margins.

Our trading price of $2.49 is still based on 2x FY18F P/BV, or 20% discount to the 20-year average of 2.5x. SMM is our short-term pick given its 3-month underperformance versus KEP. Order wins could be the key catalyst.