Brokers' Call:Sembcorp Marine

SEMBCORP MARINE

Broker: CIMB

Call: Sell

Target Price: $2.40

Sembcorp Marine's (SMM) second-quarter profit this year was 15 per cent below consensus estimates due to lower revenue, higher interest costs and losses from Cosco. As a result, the earnings for the first half of this year were 44 per cent of the 2015 forecast.

SMM declared a lower interim dividend per share of four cents.

Higher quarter-on-quarter margin on Ebit of 12 per cent was the only positive from this year's second-quarter results, thanks to higher ship repair revenue. But this may also be short-lived as repair volumes tend to be lumpy.

This year's second-quarter rig building revenue shrank 17 per cent quarter-on-quarter and 29 per cent year-on-year to $623 million, contributing only 51 per cent to total revenue. Semi-submersible revenue plunged 57 per cent during the same time.

SMM faces several headwinds like low yard utilisation in Brazil and Singapore, higher net gearing to finance working capital of projects with delayed delivery/payment and potential order cancellations.

iFAST CORP

Broker: DBS Research Group

Call: Buy

Target Price: $1.75

iFast Corp's first-half net profit for this year was up 35.2 per ent to $6.3 million year-on-year, while net revenue increased 20.6 per cent to $44.1 million.

Its Malaysian operations finally turned around in the second quarter of this year, delivering a marginal maiden net profit of $30,000. The group's larger operations in Singapore and Hong Kong continue to grow.

In Singapore, net profit grew 21.1 per cent to $2.9 million in the second quarter, and in Hong Kong earnings were 10 per cent higher at $610,000. The group's operation in China, currently in a preparation and investment phase, posted a loss of $230,000 in the same period.

The company declared a second interim dividend per share of 0.68 cent, based on a 53.9 per cent payout ratio.

Net revenue increased due to higher assets under administration (AUA) for both B2B business and B2C business, arising from the inflow of investments from customers. iFAST's key performance driver lies in the growth of AUA, which generates recurring revenues.

TAT HONG HOLDINGS

Broker: OCBC Research

Call: Hold

Target Price: 57 cents

As of June, the construction industry in Australia reportedly contracted at a faster rate, attributable to the fall in mining-related projects as the country faces the end of a mining investment boom.

With Australia making up about 46 per cent of Tat Hong's revenue, the group's crane rental business there would likely remain subdued, and its general equipment rental division may continue to be affected by pricing pressure and low utilisation. After weak results in this financial year, Tat Hong's share price fell to a 52-week low of 49 cents, but recovered slightly after an announcement of a restructuring in the group's subsidiaries in China. Forming 16 per cent of total revenue, this segment is the only division that is seeing growth, underpinned by ongoing large commercial and power plant projects.

For the 2016 financial year, Tat Hong continues to dispose of its older properties. It had also entered into a sale and leaseback for its properties in Australia. To improve efficiency, there are intentions to optimise the mix and size of its crane fleet. As a recap, Tat Hong had gained $89.1 million from the disposal of properties and equipment as well as the divestment of non-core assets.

SINGAPORE AIRLINES

Broker: DBS Research Group

Call: Buy

Target Price: $12.80

Excluding Tigerair's results, SIA's revenue fell by $117 million or 3.2 per cent year-on-year to $3.565 billion, on a 4.2 per cent decline in passenger carriage and a 1.8 per cent slide in yield. Net fuel cost decreased $182 million year-on-year, which was after hedging losses of $263 million.

SIA benefited from income earned from the release of seven aircraft (A350-900) delivery slots originally slated for delivery over the next few financial years.

SIA's passenger segment's earnings before interest and tax (Ebit) improved to $108 million from $45 million a year earlier. SIA Engineering's contribution remained flat at $21 million, SilkAir's Ebit improved to $5 million from $2 million, while both SIA Cargo and Scoot recorded narrower losses.

Fuel cost savings are set to be more substantial from the second half of financial year 2016. SIA's earnings are estimated to more than double to $763 million in financial year 2016 and are forecast to grow further to $1.105 billion in financial year 2017.

If fuel prices do not move up further, there should be further upside to earnings estimates.

A version of this article appeared in the print edition of The Straits Times on August 03, 2015, with the headline 'Brokers' Call:Sembcorp Marine'. Print Edition | Subscribe