Royal Win For SembCorp Marine

Ser Jing - Sembcorp Marine First Quarter Result, Full Steam Ahead (pic)Marine engineering firm SembCorp Marine (SGX: S51), which is majority-owned by Sembcorp Industries (SGX: U96), announced that it has won a contract to upgrade Princess Cruises’ passenger ship Diamond Princess.

Princess Cruises, from the USA, is part of the Carnival Corporation, a global cruise company that owns a portfolio of leading cruise brands, including Costa Cruises and Ibero Cruceros.

John Gunner, a senior vice president from Princess Cruises, praised SembCorp Marine’s recent retrofitting work for one of its ships, the Sun Princess. He said: “[SembCorp Marine’s] team has shown dedication and commitment working closely with [Princess Cruises’] team and successfully completing the revitalization work in a timely manner and to a high QHSE standard expected for all Princess dockings.”

The good work done by SembCorp Marine on the Sun Princess was a very strong factor in contributing to the marine engineering firm winning the upgrading contract for the Diamond Princess.

In addition, Princess Cruises would now also be included into the long-term Favoured Customer Contract that SembCorp Marine and Carnival Corporation already has in place.

While the Diamond Princess’ upgrading contract is not expected to “have any material impact on the earnings per share and net tangible assets per share of SembCorp Marine” for this year, investors should be glad to know that the company is not resting on its laurels in trying to grow the business.

The Diamond Princess’ contract-win followed SembCorp Marine’s announcement last month that it had won a US$346m contract to build a Semi-Submersible Well Intervention Rig for Helix Energy Solutions Group.

But while it might be good to know that SembCorp Marine is winning new contracts and doing great work for its customers, investors should also keep an eye on the company’s profit margin.

Winning contracts can boost the company’s top-line but if operating efficiencies aren’t improving, the bottom-line can’t grow. And the bottom-line is what should matter for investors.

SembCorp Marine’s net profit margins have decreased from 18.9% in 2010 to 12.2% in 2012. The situation hasn’t corrected itself for the first six months of this year, as net profit margins were at 11.2%, compared to 11.8% a year ago.

It might be worthwhile to think about the levers (if any) that management can pull to improve the company’s net margins.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.