SembMarine, Keppel in deep water if Brazil client goes bust

Comment: Analysts highlighted the danger of orders cancellation. Seems like this year is crucial for the oil riggers..

Maybank Kim Eng reiterated its negative call on offshore marine. “The prospects of Keppel and SembMarine receiving payments now look increasingly bleak. In our view, the worst-case scenario of almost all rig contracts being eventually terminated may now be a possibility,” analyst Yeak Chee Keong said.

OCBC Investment Research warned that if there is a complete cancellation of all the Sete Brasil rigs, there could be impairments if the vessels are sold to other companies at prices below the original contracted price of about US$800 million (S$1.1 billion) each.

UOB KayHian analyst Nancy Wei said SembMarine could see a huge loss this year from the impact of cancelled Sete Brasil orders and rig value write-downs, but Keppel’s hit could be mitigated by earnings from its property business.

“However, we would have to lower our earnings forecasts in view of a loss of future revenue from the unbuilt rigs,” added Ms Wei.

Macquarie downgraded its call on Keppel to underperform from outperform, in view of further risks if marine orders start getting cancelled, adding that its dividend payout could be in jeopardy.

“Even if rig orders come back in 2018, Keppel will not be at the front of the row as global rig orders dry up through 2017, and especially as jack-ups, a segment that Keppel dominates, may have entered a prolonged downcycle due to heavy oversupply,” Macquarie said.

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