SINGAPORE (Feb 22): CIMB is maintaining its &ldquo add&rdquo call on Sembcorp Marine (SMM) at a higher target price of $3.01, which is now based on a 20-year average of 2.5 times book value.

This comes even as the group&rsquo s 4Q net loss of $34 million came in wider than that of consensus and the research house&rsquo s forecasts, which was attributed by the management on weak operating leverage, negative variation order and cost overrun for delivered & existing floaters.

See: SembMarine swings into the red in 4Q with $33.8 mil loss

In a Wednesday report, analyst Lim Siew Khee says she has cut EPS forecasts for FY18-19 by 18-30% to incorporate the cost write-down for West Rigel and lower margin expectations.

This is however offset by higher order win expectations with a better order outlook compared to six months ago, which has led CIMB to up order expectations to $3 billion per annum for FY18-19 in view of improved enquiries.

&ldquo SMM has two outstanding Letters of Intent (LOI) - Shell Vito floating production unit (we estimate U$300-400 million) that may finalise in 2018 and SeaOne for two large compressed gas liquid carriers (we estimate U$500 million), likely to be finalised in 2019,&rdquo says Lim.

She nonetheless remains cognisant of the competitive operating landscape, which she thinks could compress margins on new projects to comparable levels with Korean yards.

Despite the group&rsquo s improved balance sheet from milestone receipts in the latest quarter, Lim also believes this could be slightly negated by higher capex.

&ldquo Management guided that capex for FY18 is likely to be slightly higher than FY17&rsquo s ($178 million) but below $500 million. Capex will be incurred for the development of Tuas yard (partial phase 3). It has spent about $1.7 billion to develop Tuas phases 1 and 2 since 2010. The capex quantum is correlated to the potential orders in the pipeline, to enhance capabilities, automation process and cost saving needs. Cash call could be a risk for this,&rdquo says the analyst.

As at 10.40am, shares in SMM are trading 6.84% lower at $2.45, or 2.05 times FY18 book value.