Sembcorp Marine, Sembcorp Marine, whither are you bound? Just when news that OPEC has decided to extend the production cuts so as to boost oil prices, you had to falter. And indeed, the fall was hard. From $1.54 to $1.41, the fall saw you shed $0.13 or 8.4%.
It was an old ghost coming back to haunt the rig builder after the company was implicated in the corruption scandal involving Sete Brasil, a unit of Brazilian oil giant Petrobas. Earlier in 2017, Keppel Corp paid a fine of US$422 million after reaching resolution agreement with the Brazilian authorities.
Assuming Sembcorp Marine was fined the same amount or around US$400 million (S$544 million), it would translate into a per share loss of about S$0.26 to the net asset value (based on 2.089 billion shares). However, we, at Shares Investment, note that the share price of Sembcorp Marine fell only $0.13, which is about half the potential fine on a per share basis. It seems that the stock did not fall as hard as the amount of the potential fine floating in the market suggests.
Is the market expecting a possible fine of about US$200 million? This is pure speculation because nobody knows how much the fine would be. The matter is still under investigation.
But as people who love to write about the stock market and predict everything under the sun, we may see further downside when the negative news is announced in the future depending on what is the nature of the “punishment”.
As reported in the media, “SembMarine made S$329 million worth of provisions for the Sete Brasil drill ship contracts in fiscal 2015. Sete Brasil, a rig-owning unit of Petrobras, was reported to have awarded contracts to SembMarine and Keppel Offshore & Marine. In the company’s 2018 annual report, SembMarine said the provisions remained adequate under the circumstances.
According to news reports, as part of Sete Brasil’s judicial recovery plan that was approved by creditors last November, drilling rigs being built by the Singapore-owned yards in Brazil could be potentially put up for sale.
If this happens, analysts say it would be positive for SembMarine as it would mean potential write-backs of provisions”.
This is good news for Sembcorp Marine. If part of the provisions could be written back, then it can offset the fine, if there was a fine in the first place.
Source: Screen grab from SGX website
Consult The Charts
When all else fail, always consult the charts. At least that is what most investors will do when the share price of the stocks that they bought just yesterday fell sharply the following day.
What do we think? Not good, it seems.
From a near-term outlook on the daily charts, the key indicators such as the stochastics and the relative strength index have all turned south and look very likely to continue on a downtrend. Any attempt to stage a rebound will only give the bears even more strength to maul the stock even further.
So where is the support? We see one at $1,37. We think the final support lies at $1.21-$1.25. That is a 2016 low, and also the last and next nearest support that we can find.
Source: Charts of SembCorp Marine from Shares Investment.
Gabriel Gan was a Senior Vice President at AmFraser Securities. He left to join DMG Securities (now renamed as RHB Securities) to take on a similar role. During his stints at the stockbroking firms, he dealt in equities, performed advisory role and executed corporate finance deals for his clients.
Since 2001, he has been invited by the media (both Mediacorp and SPH) for his stock market opinions. On radio, he spoke on 95.8FM for more than a decade; he now speaks every Wednesday and Thursday mornings on SPH radio 96.3 FM, delivering his opinion in Mandarin. On TV, Gabriel appeared on Channel NewAsia, the former Channel U and various Channel 8 financial segments including Good Morning Singapore, Hello Singapore and MoneyWeek. On print media, he continues to give quotes and comments on the economy and stock market for Lianhe Zaobao, Lianhe Wanbao and Shinmin Daily. On top of that, Gabriel was a columnist for the now defunct My Paper.