Wednesday, February 17, 2016

Sembcorp Industries FY results - Headlines can be misleading

Vested interest with 2 lots 

Given that marine reported results earlier, we already knew Profits will be dragged down.

But the next statement should be Utility net profits up 72% due to divestment gain.

Without divestment gains, utility NP will be lower than last year.

The known fact is Singapore utility  market rate is getting worse and it should not come as a surprise. 

But look at this:

Trumpeting on India's contribution? India is dragging down bottom line. Overseas market taken together is flat.

However, to be fair, divestment gains as part of capital recycling mean it is hardly once-off thing and should be consider as part of the business, but we cannot expect it to be recurring annually either. 

Lastly, I am hardly convinced that the impairment by marine for Sete Brazil is sufficient, given the bulk of payment for still ships are due upon delivery. What about the remaining 4 that have not started construction, is the impairment going to be a yearly thing for the next 2 years?

Marine is making Sembmarine fiances really ugly with cash flow affected and debts increasing. Dividends is cut is hardly surprising, analysts were talking about special dividends from the divestment gains, I was just hoping to get status quo. So, results is below expectations.

A spade is a spade. It's lousy results. 

But will it survive? Is it worthless? 

I did make a bid some time back at $2.1. But didn't get any. Maybe if it goes that low or beyond. I might be adding. 

It will not be due to valuation based on earning or yield then. 


  1. they have not incur much for the last 4, and I do not think they invoice them significantly too.

    The problem is the reduced backlog order and the empty Brasil yard which was started specifically for the Sete Brasil rigs.

    if Keppel is bad, sembcorp should be worst off. That's my sentiments always!

    1. yes, i do agree that semb corp result worse than keppel corp.

      everybody is betting that Temasek to privatize semb marine.

      Rolf, do you think privatize semb marine is good to shareholder and semb corp?

    2. Rolf,

      Personally reduced backlog is not as scary as spending money to build and then not getting paid if you ask me.

      I rather they just kiss the remainder rigs goodbye, write down their orders, and save cost to wait for another day, rather than continue to burn cash and build and hope to find a buyer...

    3. they have stopped building last few rigs since more than 1 yr ago, just that retailer do not know!

      It's more complicated than u think about the remaining backlog. in business sometimes ur loan, worthiness is also supported by backlog n projects!

      Backlog is impt to fill the yard capacity they have! Even u dun have enuff backlog, ur yard per month cost is incredibly high.

      Backlog is future problem people then to forget at present! Rigs take 32-36 months to complete.

    4. whether Temasek privitise I dun know. it's insider news to profit from a speculative reason if u buy now.

      I focus on first business outlook long term then figures! Many investors always analyse too much on figures which sometimes they forget the underlying biz is more critical.

      I was just in semb marine today! :-)

    5. Ok. Good then.
      I have too much semb corp

    6. You ask CW what to do with your sembcorp? He will tell u rounds after rounds!

      Privatise is good for Temasek maybe! For SCI, not sure leh!
      For investors, only good for those who buy cheaper than the privatising price.

      If privatise SCI price up, then good. If SCI price down, then no good!

      But business of SCM in Oil and Gas still not much diff whether privatise or not!

    7. Rolf and Yeh,

      Seriously, I think if privatisation do happen, it will be ugly.

      SCI do not have the resources to do it now. So what will they do?
      1) increase loans? That is bad in an interest raising environment and balance sheet is further weaken
      2) Rights issue. If ah gong want SM, it will make SCI will offer rights at significant discount and mopped up excess shares. Kill 2 birds in 1 stone. Then maybe it will be SCI turn.
      rights is dilutive and discount disruptive

      So privatize SM at current markets. Tolong Tolong la, please dun disturb ...

  2. Hi Sillyinvestor,

    I agree. Management tend to paint a rosy picture to placate shareholders.....

    1. DK,

      yup, while factually correct, how one interpret is up to individual LOL

  3. There is also the high level of debt in SC.
    Debt to equity ratio is around 0.9 and finance expenses was around 20% of gross profit previous FY (when there was still profit).
    Don't seem a good buy unless the debt matches capital investment for utilities and is more than covered by contractual prices for the utilities.


    I got this link from valuebuddies, an transcript of analyst presentation.

    Very informative. Key points:

    1) India's under performance due to 1 off weather (cyclone), there is shut down, then damages to coal and repair costs. Demand is back to 85%

    2) management has no intention to privatize Sembmarine and least price is riciicuouly cheap. Ghey not saying what price is cheap

    3) Singapore market might have bottom although weakness to persist

    No wonder market gives it results the thumb up

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