Sembcorp Industries - Better Outlook From Two Main Segments
- Utilities are likely continue to provide stability to Sembcorp Industries’ earnings, with its presence in key developing power markets.
- We believe its marine segment has turned a corner and is expected to register a better performance in FY17. This is with an expectation of a higher orderbook replenishment, helped by the stabilisation of crude oil price.
- We continue to maintain our BUY recommendation on Sembcorp Industries with a higher SOP-based TP of SGD4.17 (from SGD3.95, 24% upside).
Utilities on growth path.
- Sembcorp Industries’ presence in the developing market would continue to support its utilities segment growth.
- In FY16, c.3,000MW and 40,000 cubic metres/day of power generation and water capacity respectively was completed and commissioned which includes two 1,320MW thermal plants in China and India.
Marine orderbook at SGD4.7bn.
- The stabilisation of crude oil price would be positive for the marine segment, which depends heavily on development capex spending.
- Although FY16 was a low year in terms of orderbook replenishment, securing only SGD320m of new orders, we expect FY17 to be a better year for the marine segment.
- We expect this segment to secure SGD1bn of new orderbook in FY17 coming from floaters, offshore platforms and non-drilling solutions.
- We also expect about 30-40 development projects to be awarded in FY17 compared to six in FY16.
Maintain BUY, with a SGD4.17 TP.
- The expected recovery in the marine segment earnings should provide growth for Sembcorp Industries, supported by stable earnings from its utilities segment.
- Key risk to earnings would be a lower- than-expected orderbook replenishment and capacity factor for its marine and utilities segments respectively.