Sembcorp Marine is expected to post a further deterioration in its financial performance before things improve, a Singapore analyst has predicted.
UOB Kay Hian shipbuilding analyst Adrian Loh now expects the Singapore-listed company to post a full-year loss of SGD 261m ($188m).
On Wednesday, the company reported a first-half loss of $19m due to the shutdown of production at its Singapore yards since April, due to the coronavirus pandemic.
“This loss was worse than our and consensus expectations, and exceeded loss estimates for the full year,” said Loh in a note to investors.
“As a result of the Covid-19-related shutdown of its Tuas shipyard from April, the company was not able to book in much revenue in the second quarter, but nevertheless continued to incur project costs.”
Loh said the key unknown for Sembcorp Marine, apart from the downturn in the offshore marine industry, is when its shipyard can resume operations.
Can the situation get worse ?
“The company admitted that it did not have any visibility on this issue as it is very much up to the Singapore government and the relevant ministries to ensure that any resumption of work is done in a safe and responsible manner.”
Loh said there was a further downside risk to his estimates should Sembcorp Marine’s shipyard fail to restart operations in the third quarter.
“It is possible things could get worse, given that many countries have experienced a second wave of Covid-19 infections,” he said.
“Nevertheless, our base case view is that Singapore will continue to reopen its economy gradually in the third quarter and that means Sembcorp Marine’s yards will be allowed to resume operations.”
Loh has previously predicted that Singapore’s offshore yards face a major order drought until the middle of 2021 at the earliest.
“Day and utilisation rates for rigs have deteriorated in the first half of 2020 and the chances of a recovery in the offshore and marine sector in the near term remain low,” he said.
“The industry outlook remains challenging and new order flow may only resurface in the first half of 2021 in our base-case scenario. This reinforces our view that an upcycle is more than two years away.”
