Sembcorp Marine: Strong margins in 3Q08

3Q08 net profit better than expectations. Sembcorp Marine (SCM) announced its 3Q08
results last evening. 3Q08 topline fell 2.3% YoY (and -17.4% QoQ) to S$1.1b as there was no
major initial revenue recognition, other than one unit of jack-up rig during the quarter. Gross
profit margin increased significantly from 9.4% in 3Q07 to 15.5% in 3Q08 (vs. 11.2% in 2Q08).
Excluding S$12.5m net gain in foreign exchange due to the revaluation of US dollar monetary
items, core profit before tax (PBT) achieved S$168.4m, surpassing our estimates by 23% due to
higher margins as well as increased contributions from SCM’s associated company, Cosco
Shipyard Group.
On track for record year. On a 9M period basis, SCM’s turnover increased 8.5% to S$3.4b
from S$3.2b in 9M07. PATMI surged 50.0% to S$360.5m from S$240.2m in the same
corresponding period.
However, outlook remains cautious as tight credit market has put on hold big ticket
purchases. The Offshore Marine sector is capital intensive in nature. With tightening of the
capital markets and easing oil price, we opine that our earlier beliefs of possible contract inflows
such as the Petrobras’ new production platform, P62, a repetition of P-54, (approximately valued
at more than US$1.0b) and other piecemeal Floating Production Units (FPU) contracts may be
shelved and/or not be materialized. This point may be illustrated from Atwood Oceanic’s recent
press announcement on its choice not to exercise the option to build a third semi-submersible at
SCM.

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