Negatives priced in
- 2Q15 core profit of S$169m met our expectation but was below consensus by 15%.
- 1H15 core profit formed 46% of our FY15 forecast.
- SCI declared an interim DPS of S$0.05 (1H14: S$0.05).
- We cut FY15-16 EPS by 8% to reflect our recent earnings cut in SMM.
- Our SOP-based target price is also reduced (from S$4.30 to S$4.02), on a lower target price for SMM.
- The recent sell-down could be overly done as the implied CY16 P/E for Utilities of 5.7x is below the historical average of 7x.
- We upgrade from Hold to Add as we see limited earnings downside.
- We assume 40% earnings reduction for Singapore power from 2H15 and zero profit for TPCIL in FY15.
- Potential catalysts are stronger Singapore power prices and there is higher profit from TPCIL 1.
- The unit was operating at more than 90% load factor in Jun/Jul, suggesting that the teething phase is over.
We have assumed weaker Singapore from 2H15-FY17
- Singapore’s 2Q15 net profit grew by 18% qoq to S$36.4m.
- Power spark spread and the water segment remained stable, but solid waste was up 39% qoq as contracts were renewed at higher rates in addition to more wood waste recycling.
- Daily pool prices in Jul spiked as high as S$530/MW due to the unplanned shut-down of certain genco(s), resulting in higher despatch by SCI.
- Although pool prices in Aug have dropped to c.S$100/MW, we believe the spike in Jul could help to narrow the potential losses in Singapore power in 3Q15.
- We have assumed a S$6m quarterly loss for Singapore power in 3Q15-4Q15 and a S$7m quarterly loss in FY16-17 to account for lower VC.
- Earnings upside could stem from rational market behaviour, to adjust for higher tariffs.
India unit 1 at +90% plant load factor
- TPCIL recorded S$9m of losses in 2Q15, capturing upfront start-up costs for unit 2 (to start in 3Q15).
- SGI (previously known as Green Infra) delivered a profit of S$3.8m in 2Q15 but we expect the project to deliver c.S$6m of profit in FY15 (comparable to FY14).
- Wind load factor is the strongest from May-Oct which means that earnings are the strongest in 2Q-3Q.
Limited downside
- Its share price is beaten down by c.30% YTD, potentially pricing in the weak Singapore power and earnings decline in SMM.
- Our target price incorporates a S$2.40 target price for SMM, and DCF for Utilities (WACC: 6%, LTG: 1.5%).
Analyst: LIM Siew Khee
Source: http://research.itradecimb.com/
