Sembcorp Marine’s 2022 Net Loss Expected

Sembcorp Marine’s, or Sembmarine’s S51 2022 net loss of SGD 261 million, a significant improvement from a net loss of SGD 1.17 billion in 2021, was within our expectations. We believe the net loss is well guided by management and that investors will focus on the positive outlook ahead, following completion of the merger with Keppel Offshore & Marine. We expect Sembmarine to be largely break-even in 2023 before posting a higher net profit of SGD 374 million in 2024, on the back of improved activities and larger order book. However, we keep our fair value estimate at SGD 0.12 as the higher earnings derived from the merger are offset by a 117% increase in the share base. We think Sembmarine is fairly valued currently, and we believe upside will need to be driven by significant new order wins and better-than-expected synergies generated from the merger.

We note that Sembmarine’s EBITDA turned positive in second-half 2022 and we expect the improvement to continue in 2023 as the negative impact from coronavirus restrictions subsides. More importantly, the firm generated positive operating cash flow in 2022 given improved collections of long-term receivables and payments from the delivery of projects. As a result, the net gearing ratio improved to 0.3 times as of end-2022 from 0.5 times as of end-2021. We think the stronger balance sheet will enable the group to bid for more projects.

We believe the enlarged group is now a stronger entity that can compete for larger contracts with proven track records. This should continue to underpin new order wins and support earnings. The combined entity has an estimated net order book of around SGD 17.3 billion as of end-2022. We forecast Sembmarine will secure SGD 5 billion worth of new contracts in 2023, given improving order visibility on the back of opportunities from the ongoing energy transition.