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SembCorp Marine Grows Despite Challenging Conditions

Sembcorp Marine (SGX: S51), a leading marine and offshore engineering company in Singapore, reported a good effort in their overall performance for 2013 yesterday evening.

Its main competitor, Keppel Corp (SGX: BN4), had reported its full-year earnings last month and saw its offshore and marine arm book revenue of S$7.13 billion, some 58% higher compared to a year ago while profits jumped 66% to S$930 million.

Sembcorp Marine, which constitutes the marine engineering arm of Sembcorp Industries (SGX: U96), had achieved a 24.7% increase in revenue, pushing it to more than S$5.5 billion for 2013.

The company’s core businesses consists of ship repair, shipbuilding, ship conversion and offshore, rigbuilding and offshore engineering and construction.

Performance for the Year

Sembcorp Marine attained full year profits of S$556 million, some 3% more than last year. Those profits also allowed the company to  continue to accomplish a high return on equity of 22%.

SembCorp Marine’s most important top-line driver in 2013 would be its rig-building business, which grew 51% to S$3.56 billion and accounted for two-thirds of the company’s overall revenue for the year. An increase in the number of new projects that had revenues recognized was the main contributor in the segment’s top-line growth.

Elsewhere, the ship conversion and offshore segment had a much weaker year, recording a drop in revenue of 14% to S$1.20 billion. This reduction is mainly due to the timing of projects in addition to a smaller number of projects achieving revenue recognition status.

Lastly, due to some upgrading projects and the timing in the recognition of repair and upgrade projects, the ship repair segment recorded a 6% growth in revenue to S$642 million.

At the end of 2013, Sembcorp Marine still possesses a strong balance sheet, with a net cash position (total cash minus total debt) of some S$929 million, down 13.6% from S$1.08 billion in 2012. Despite a slight weakening in the company’s still-strong balance sheet, its book value per share had increased from 116.80 Singapore cents to 128.21 Singapore cents.

The company’s declared a final dividend of S$0.06 per share, in addition to a special dividend of S$0.02 per share. That would bring SembCorp Marine’s total dividends for 2013 to S$0.13 per share, unchanged from 2012.

Foolish Summary

Sembcorp Marine currently has a net order book of S$12.3 billion that stretches till 2019. However, the company’s management is wary of the future as the global economy continues to be challenging.

The company expects the labour market to be tough, adding to its margin pressures. But it also reiterated its focus on improving “operational efficiency, productivity and safety management as well as ensur[ing] timely delivery of projects to its customers”.

Elsewhere, demand for its big docks ”remains strong”. With the opening of the new Sembmarine Integrated Yard @ Tuas Phase I faciliy in August 2013, Sembcorp Marine is expecting better operation efficiency and productivity going forward there.

At yesterday’s closing price of S$4.09, the company is trading around a price earnings multiple of 15.4x and is giving investors a 3.18% dividend yield.

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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 Stanley Lim doesn’t own shares in any companies mentioned.