Are Keppel Corporation Limited And Sembcorp Marine Ltd Out Of The Woods Already?

The price of oil was over US$100 per barrel back in 2014. But today, it is around US$50 per barrel. This sharp fall has caused many oil producers to delay or stop their capital expenditure programmes.

As some of the world’s largest oil rig builders, Keppel Corporation Limited (SGX: BN4) and Sembcorp Marine Ltd (SGX: S51) have both seen their businesses suffer as a result. In the first nine months of 2016, they have seen their profit fall by 43% and 82%, respectively. Moreover, they have also seen some of their customers go bankrupt.

Could there be light at the end of the tunnel soon? One way to find out is to look at the progress of Keppel Corporation and Sembcorp Marine’s respective order books as part of both companies’ future revenue comes from there.

In the third-quarter of 2016, Keppel Corporation reported an order book of S$4.1 billion (excluding orders from Sete Brasil, a bankrupt customer). At the end of 2015 and the second-quarter of 2016, the company’s order book (again excluding Sete Brasil orders), was S$5.1 billion and S$4.3 billion, respectively. So, you can see that Keppel Corp’s order book has been declining throughout the current year.

It’s a similar situation for Sembcorp Marine. The company’s order book (excluding Sete Brasil orders) in the third-quarter of 2016 is S$5.2 billion, down from the S$6 billion seen in the second-quarter of the year.

From the trends in both companies’ order books, it appears that light hasn’t entered the tunnel yet. But, it’s worth mentioning the chart below, which plots Keppel Corporation’s net order book since 2006:

Source: Keppel Corporation website

You can see that Keppel Corporation’s order book had fallen to less than S$5 billion in 2010, only for it to then stage a strong comeback in subsequent years. There is always a possibility that Keppel Corporation and Sembcorp Marine’s order books can improve going forward. Only time will tell. In the meantime, it can be useful for investors to monitor the order book of both companies closely.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.