Awaiting contract wins
- 2H21 net loss smaller than guidance; operating losses also narrowed
- Expect continuous operational improvements in 2022; order visibility is improving
- Yard merger’s definitive agreement to be concluded by end-1Q22
- Maintain HOLD; TP adjusted slightly to S$0.09
Hefty losses in FY21. SMM reported net loss of S$1.17bn in FY21. On a positive note, losses in 2H was smaller than earlier guidance of similar losses as 1H, but this turned out to post 19% h-o-h decline. Stripping out the impairment and provisions totaling S$839m, net losses would have been S$331.6m, 24% contraction in losses relative to a year ago.
Overall, interim losses have been narrowing, from S$200-250m half yearly in 2020 to S$150-175m half yearly in 2021. Management has guided for improvements in 2022 as workforce issues that hit 2021 has also stabilised.
Impairment & Provisions in FY21:
| Impairment & Provisions (S$m) | 1H21 | 2H21 |
| Provisions for cost to be incurred over next 6-18 months: – Additional labour & other costs to complete projects | 361 | 335 |
| Yards’ reinstatement costs | 65 | 10 |
| Asset impairment loss | 46 | 22 |
| Total impairment & provisions (post-tax) | 472 | 367 |
Source: Company
Successful delivery of first EPC newbuild FPSO project. Despite the challenging operating environment, SMM successfully delivered several key projects, including its first EPC newbuild FPSO – the Johan Castberg – marking a significant milestone. It has also completed fabrication works for 15 wind turbine jacket foundations for Jan De Nul’s Formosa 2 Offshore Wind Farm, adding SMM’s credentials in renewable space.
Net orderbook is low at S$1.1 bn (excl S$0.2bn repair orders) as of end 2021. SMM secured c.S$800m new orders in 2021, based on our estimate. While it is an improvement from nil orders in 2020, it remains a far cry from breakeven revenue of S$2bn.Current orderbook is running very low at S$1.1bn (excl repair orders of S$0.2bn). It is worth noting that 43% of its orderbook is made up of renewable or green solutions.
Improving order visibility. Management is seeing improving industry outlook on the back of rising oil prices, providing impetus for oil and gas companies to review plans for those deferred projects nearing Final Investment Decisions (FID). SMM is actively pursuing multiple projects covering FPSOs, FSOs, and FPUs with tenders in progress.
SMM has commenced work on the FEED contract awarded by Altera in Sept-2021 for the development of an FPSO facility for the Dorado FPSO project. The Group remains hopeful in securing the EPC contract for the project.
Negotiations are also in progress with the Brazilian Navy on the construction of the Antarctic Support Vessel “NapAnt”, which is part of the Brazil Navy Research Vessel Project, with contract award expected in 1H2022
Strengthened balance sheet. Successful completion of SMM’s S$2.1bn rights issue in Sept-2020 and subsequent S$1.5bn rights issue in Sept-2021 have strengthened its liquidity position and recapitalized its balance sheet, to meet its ongoing operational funding requirements. Post issuance and impairment, BVPS stood at 12Scts and net gearing dropped from 1.9x as of end 2019 to 0.5x as of end 2021.