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Abandon ship: Here’s how Singapore’s largest rig builders fared in Q1
KepCorp and Sembmarine did not escape unscathed.
The first quarter reporting season gave investors a frightening peek at the damage that the oil downcycle has wrought on local rig builders.
This point-by-point comparison shows how the country’s two largest shipbuilders--Keppel Corporation’s offshore and marine segment and Sembcorp Marine--fared in relation to each other.
1. Net profit and margins
Keppel Corp's offshore and marine segment booked a net profit of $203m in the first quarter. This translated to a 12% year-on-year decline for the segment and made up 56% of KepCorp's overall net profit. Keppel O&M also reported that operating margin was lower at 12% in the quarter, compared to 14.6% a year ago and 13.2% in 4Q14.
On the other hand, Sembcorp Marine’s net profit decreased 14% year-on-year to $106m. Sembmarine’s results were dragged by lower revenue, higher operating expenses and a forex loss. According to CIMB analyst Lim Siew Khee, Sembcorp Marine’s EBIT margin stood at 10.6% in Q1, lower than its 13.1% EBIT margin in the same period last year.
2. Order Wins
Keppel Corp reported that its O&M arm secured $500m worth of contracts in the quarter, significantly lower compared to the $5.5b that the group secured for the whole of FY14 and $7b for FY13.
Meanwhile, Sembcorp Marine secured $56m worth of contracts year-to-date. OCBC analyst Low Pei Han noted that while Sembmarine has also received a letter of intent for a large semi-submersible crane vessel, the deal's conversion to a firm order could take a few months.
3. Order book and deferrals
Keppel reported a net order book of $11.3 billion as at end-March 2015, which it believes will keep its yards well-occupied for the next two years. However, the group also reported that eight rigs have been deferred-- five from Transocean and three from Fecon--due to customer requests. However, Keppel reiterated that it will obtain some compensation for fulfilling the requests.
Sembcorp Marine did not report any deferrals when it unveiled its results, but analysts note that it is highly unlikely that its order book will breeze through unscathed.
“Given that Keppel Corp has received requests from customers for deferments in rig deliveries, it would be a surprise if SMM has not received any. Management would only comment that it is unable to make any statement for now,” stated OCBC’s Low.
4. Stance on Sete Brasil
Keppel reported that as at the end of March, the first three submersibles that it is constructing for Sete Brasil were about 89%, 58% and 32% completed. Keppel noted that it was in a net cash position for the three projects as at the end of the first quarter, since it had received payments for the submersibles up to November last year as well as a 10% down payment for the remaining three units.
“We do not expect Sete Brasil to cancel their projects with Keppel. We are engaging our customer to see how we can best work together in the interim, and will explore all our options including the possibility of slowing down construction until Sete Brasil has sewn up long term financing for our projects,” stated Keppel.
Meanwhile, OCBC noted that the amount outstanding from Sete Brasil to Sembcorp Marine has increased to $160m as of end Dec last year, and this figure is relatively stable as of end Mar, given the deliberate slowdown in construction for the drillships. Currently, about 82% of the first drillship has been completed, followed by 70% for the second, 51% for the third and 22% for the fourth. These projects remain cash positive.
“Meanwhile, Brazil’s oil and gas industry continues to be mired in uncertainty. We continue to engage with our customers to find the best way forward for our drillship projects and are exploring all options including slowing down the construction,” Sembmarine stated in a release.
5. Outlook
Keppel guided that lower oil prices will negatively impact its offshore and marine segment. The group also noted the risk of project cancellations remains low in spite of the order deferrals.
Sembcorp Marine warned shareholders of a challenging year ahead on back of the ongoing cutback in global exploration and production expenditure.
“New rigs face the prospect of not securing charters despite their higher technical specifications and superior capabilities. As a result, the Group faces a challenging year ahead,” Sembmarine stated.
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