■ KEP could dish out a special 50th anniversary dividend on stronger balance sheet while SCI should see better utilities earnings with higher load factors in India.
■ YZJ should also see stronger qoq shipbuilding margin with the delivery of some 30 vessels in 2Q18 vs. 9 in 1Q18. There could be a positive impact from a weak Rmb.
■ SMM could see a net loss of c S$20m with little improvement in operating leverage.
■ Maintain sector Overweight as aggregate valuations are at c 1x CY18FP/BV or -1s.d of its 10-year mean vs. improving ROE of c. 7% . Orders are still the key catalysts. Read More
Slower pace of orders in 2Q18, cut our order forecasts for FY18F
After a surge in global offshore fields achieving Final Investment Decisions in 2017 (c. US$91bn), the pace slowed with 33 projects YTD (c. US$26bn) at smaller values. We blame this on keen competition, political risks and leaner cost structure among the operators. KEP O&M and SMM secured c. S$800-900m each in 2Q18 and YTD vs. our S$3bn target for 2018. We cut our order target to S$2bn each for 2018 to be more realistic in our expectations.
Keppel Corp - Technical Analysis
KEP’s 2Q18 net profit will be lower qoq with c. S$90m of property gain vs. c. S$290m in 1Q18. O&M EBIT to remain steady qoq at 2-3%. No land sale in Tianjin Eco City in 2Q18 but Investments should be profitable form mark-to-market gains for KrisEnegy warrants. KEP’s balance sheet to be boosted by c. US$460m from Borr Drilling (downpayment of recent rigs sale and delivery of 2nd novated Transocean rig). This could provide ammunition for special dividend (c.S$0.10-0.12).
Sembcorp Marine - Technical Analysis
We expect SMM to deliver a net loss of c.S$20m, based on -1% EBIT margin. Management guided in 1Q18 of a possibility of negative operating profit if there are no major changes in order trend. We estimate order book to be about S$4.6bn by end-2Q18 (1Q18: S$4.59bn). We think losses may not shock the market anymore but the focus will be on how fast SMM can clinch sizeable orders to improve yards’ utilisation and operating leverage. It is trading at c.1.7x CY18F P/BV, or -0.5 s.d of 5-year mean.
Sembcorp Industries - Technical Analysis
We expect SCI to deliver a 2Q18 net profit of S$75m (-2% qoq, +35% yoy), after incorporating the loss in SMM. Utilities should see a stronger profit of S$83m (+18%, +8% yoy) on the back of a seasonally-stronger wind load factor in SGI. India should swing into the black (c.S$5m-7m). Other contributing factors are higher plant load factors in SGPL (c.90%). China profit could slide qoq coming out of winter while Singapore and other countries should remain steady qoq. Ex-SMM, its utilities business is trading at an undemanding valuation of 0.3x CY18F P/BV (-2 s.d since 2010) vs. ROE of 7%.
Yangzijiang - Technical Analysis
We expect YZJ’s 2Q18F profit of c. Rmb720 (+20% qoq, flat yoy) with the delivery of +20 vessels. Shipbuilding margins could improve to c.20% (1Q18: 17%). HTM income could grow qoq with new portfolios renewed a higher yield. There could be some positive translation impact from depreciating Rmb. The stock is trading at trough valuations of 0.6x CY18F P/BV. Upside to earnings could come from provision write-back at end-18.
Source : CGSCIMB Research