Marine engineering firm Sembcorp Marine (SGX: S51) announced its third quarter earnings yesterday evening and posted great jumps in revenue and profits.
The company, a majority-owned subsidiary of fellow Straits Times Index (SGX: ^STI) constituent Sembcorp Industries (SGX: U96), earns its keep mainly from the repairing, building, and conversion of ships and rigs.
Some basic numbers
For the three months ended 30 Sep 2013, Sembcorp Marine brought in S$1.66b in revenue, representing a huge 86% increase over the corresponding figure a year ago. Profits on the other hand, moved up 12% to S$130m.
The company’s top-line had grown mainly due to higher revenue coming from the rig building sector, which surged by 167% from S$428m a year ago to S$1.14b. Sembcorp Marine had five rigs achieve revenue recognition: a well-intervention semi-submersible rig; a harsh-environment semi-submersible rig; and three jack-up rigs. In comparison, the third quarter of 2012 only saw one jack-up rig achieve recognition.
The repair sector was another bright-spot as turnover grew 34% from S$153m to S$204m, unlike the conversion and offshore sector.
The latter’s revenue for the quarter declined 10% year-on-year to S$271m due to two factors: the economic value of the projects handled were smaller and revenue recognition for the projects came in later.
As mentioned earlier, SembCorp Marine’s bottom-line had grown at a much slower pace compared to its top-line. There were a couple of big factors at play.
Cost of sales had doubled from S$725m to S$1.48b, squeezing the company’s gross profit margins. As we travel down the income statement, the company also saw a 67% increase in tax expenses to S$32.7m.
Those two expenses – cost of sales and tax expenses – were big culprits in SembCorp Marine’s sliding profit margins.
The company’s declining profit margins was a problem I have highlighted previously and it’s something investors should keep an eye on.
Operational highlights and the balance sheet
SembCorp Marine had managed to bring in S$292m in operating cash flow for the quarter, but there were scarcely any free cash flow left as capital expenditures came up to S$292m as well.
Nonetheless, the company’s balance sheet still remains really strong with S$1.76b worth of cash on hand while carrying only S$634m in total debt. That’s also an improvement over 12 months ago, when it only had S$1.41b in cash and S$333m in debt.
What’s next for SembCorp Marine
As of 30 Sep 2013, the company has secured contract orders worth S$3.9b since the start of the year. Its order book now stands at S$13.5b, a 6.4% increase from S$12.7b at the end of 2012.
Some of these orders extend all the way till 2019 and while it’s great to see SembCorp Marine ring in the register as more work comes its way, the onus is still on the company to arrest the slide in profit margins.
The company commented: “The long-term industry fundamentals for the offshore and marine sector remain sound underpinned by exploration activities with increasing interests in harsh environment and field development programmes. Demand for high specification and ultra-deepwater rigs with advanced technical features are expected to remain strong. SembCorp Marine with its track record and proven capabilities is well-positioned to benefit from the opportunities in this sector.”
In addition, investors can also look forward to greater contributions from the company’s new Sembmarine Integrated Yard @ Tuas in Singapore, which started operations in August this year.
According to SembCorp Marine’s press release for its third quarter earnings, the yard is equipped with 4 VLCC (very large crude carriers) size drydocks with a total capacity of 1.55m deadweight tonnes as well as finger piers and basin lengths totalling 3.9km.
The yard is capable of undertaking a whole host of works related to Floating, Production, Storage and Offloading (FPSO) conversions, in addition to servicing many different kinds of vessels such as VLCCs, new generation of mega containerships, LNG carriers, semi-submersible rigs, and more.
Valuation
At 9:15am in the morning, the market doesn’t seem too happy with the company’s results as its shares are down 2.5% to S$4.38 from yesterday’s close even as the Straits Times Index is up slightly by 0.1%.
At that price, shares of Sembcorp Marine are valued at 17 times trailing earnings and carry a dividend yield of 3% based on its pay-out last year.
inphyy wrote: CapitaLand - How CapitaLand could milk gains from Singapore, China assets in Q4
Will they be as impressive as Q3 performance?
According to DBS, looking ahead, 4Q13 and FY14 contributions are likely to be led by higher residential sales in Singapore and China as well as better retail mall leasing income.
Here's more:
In China, it has locked in Rmb4.3m of new sales YTD. This in addition to the 1800 units to be handed over in 4Q, and should underpin China residential profits.
In Singapore, it has a remaining 1,239 units yet to be sold from various projects. Other business segments such as the retail mall and serviced apartment business units should continue to deliver better y-o-y performance on new mall completions and securing new management contracts.
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Disappointed results....Support when price 2.98
Lippo Malls Indonesia Retail Trust distributable income up 20.7% to S$19.1m
Mall acquisitions propelled gross rental income.
Lippo Malls Indonesia Retail Trust (LMIRT) reported 3Q13 gross rental income of S$38.9m, up 13.6% YoY, reports OCBC Investment Research.
"The increase was mainly due to the acquisition of the six new malls in 4Q12, and positive rental reversions for the existing malls," noted OCBC, with distributable income increasing by 20.7% YoY to S$19.1m and DPU climbed 19.2% YoY to 0.87 S cents.
OCBC said the results for the quarter were within the research firm's and street's expectations, as 9M13 DPU of 2.69 S cents formed 75% of OCBC's FY13 estimate.
Yoma - Strategic returns rebounds to S$3.3m net profit in 2Q2014
From S$4.2m net loss in 2Q2013.
Yoma Strategic Holdings’ (Yoma Strategic) net profit attributable to shareholders for its second quarter ended 30 September 2013 (2Q2014) recorded a S$3.3 million, on the back of a 132.4% increase in revenue to S$27.0 million.
The revenue recorded for 2Q2014 was the highest quarterly revenue since Yoma Strategic’s listing on the SGX-ST Mainboard in 2006. The Group’s revenue growth was driven by the continued strong sales of residences and land development rights (LDRs) as the demand for high quality homes continues to outstrip supply.
The sales of residences and LDRs accounted for S$26.4 million or approximately 97.8% of total revenue, compared to S$10.8 million for the previous corresponding quarter (2Q2013).
Out of the S$26.4 million, the breakdown in sales for residences and LDRs were S$11.0 million and S$15.4 million respectively. As a result, net profit attributable to equity holders of the Company improved from a net loss of S$4.2 million in 2Q2013 to a net profit of S$3.3 million in 2Q2014.
Commenting on the 2Q2014 financial results, Yoma Strategic’s CEO, Andrew Rickards said, “We are pleased to deliver a solid set of results as our Real Estate Division continues to perform strongly.
While real estate remains our strongest growth driver, we are also building our non-real estate businesses and are confident that they will begin to contribute meaningfully in the near- to mid-term.”
Gross profit margin declined marginally to 44.9% in 2Q2014 as compared to 47.2% in 2Q2013 due to lower revenue generated from the sales of Pun Hlaing Golf Estate (“PHGE”) LDRs, where the margins are higher. It however improved by 5.8 percentage points compared to 39.3% in the preceding quarter (1Q2014).
