Will the tides turn in 2016 for beleaguered Sembcorp Marine?

More writedowns, order cancellations may be around the corner.

The battle is just beginning for Sembcorp Marine (SMM), as further asset markdowns may be on the heels of the company’s whopping $537m net loss in Q4.

According to a report by Maybank Kim Eng, there is a risk of further markdowns for the company. If market conditions further unravel, SMM will have to grapple with more contract cancellations or tapered asset prices. Further, SMM has admitted to low visibility on Sete Brasil’s fate.

The report also notes that SMM’s core operations in FY15 were uninspiring. Stripping out provisions, operating margin stands at 7.5%. Additionally, ship repair showed lacklustre performance as FY15 revenue tumbled 10% YoY to $557m, below the $600m to $800m range since 2006.

Moreover, risk-reward remains unfavourable as SMM will likely have to endure a sustained drought in orders over FY16 to FY17, as well as a burgeoning risk order cancellations that will result to even more asset write-downs.

On the flip side, there are still some catalysts that can propel SMM back into the black such as potential privatisation of SMM by its parent company or by Temasek; Sete Brasil locking down enough funds to take delivery; and SMM securing alternative buyers for good prices.