Unbilled receivables up >2x since 2013
Following Sembcorp Marine's recent profit warning and our subsequent major cuts to earnings and target price, we believe the market will also increasingly focus on KEP O&M's rising unbilled receivables (sales recognized but not billed due to deferred payments terms) in view of challenges customers are facing raising funds and chartering out the rigs.
As shown in the chart above, Keppel O&M's unbilled receivables have risen by >2x since 2013 to about S$3.3bn as at 9M15 (note, the 9M15 figure is our estimate as the group does not provide quarterly data). The rise of this figure is less steep compared to SMM (up >4x over the same period) and as KEP O&M is wholly owned by KEP, it accounts for about 28% of total group equity (SMM's unbilled receivables account for about 90% of its total equity).
Nonetheless, rising unbilled receivables in a challenging operating environment is a risk and worth monitoring closely as any unexpected negative developments with the customer contracts may force the company involved to reverse its revenues/earnings. (Read Report)
1) Sembcorp Industries Ltd - Incorporating our latest earnings and target price cuts for SMM by Deutsche Bank Markets Research, published on 2 December 2015
2) Sembcorp Marine - Profit warning; significant cuts to our forecasts and target price by Deutsche Bank Markets Research, published on 2 December 2015
Source : Deutsche Bank Markets Research