<News Analysis> Expect another hefty loss in 2H

  • Expect another huge loss in 2H21 due to cost overrun
  • Temasek’s MGO at 8 Scts lends support to share price 
  • Next key event to watch is merger with Keppel O&M 
  • Maintain HOLD; TP cut to S$0.08 post earnings revisions 

Significant losses for 2H21. SMM issued a profit guidance that it expects to incur significant losses in 2H21, potentially similar to losses reported for 1H2021, which was S$647m. This is due largely to further delays and higher projected costs for outstanding projects. 

Execution challenges persist. While SMM has made some progress in managing delays in project completions, COVID related measures continue to adversely impact its performance. It has encountered further execution challenges:
i.        Delays in delivery of equipment arising from border controls
ii.        Supply chain constraints leading to longer lead time to purchase various components 
iii.        Continued attrition of skilled workers and slower than expected recruitment of additional skilled labour
iv.        Work disruptions resulting from measures taken to address the recent spike in COVID cases.

The magnitude of losses depends on pace of Covid recovery, easing of supply chain delays, and outcome of ongoing negotiations with counterparties on revised delivery dates. 

Earnings revision. We now expected bigger losses of ~S$1.37bn in FY21 and S$242m for FY22 to reflect the cost overruns.