Sembcorp Industries - RHB Invest 2017-08-04: Caught By Higher Interest Expenses

Sembcorp Industries - RHB Invest 2017-08-04: Caught By Higher Interest Expenses SEMBCORP INDUSTRIES LTD U96.SI

Sembcorp Industries - Caught By Higher Interest Expenses

  • Sembcorp Industries’ (Sembcorp) registered YoY growth for its revenue, EBITDA and operating profit respectively. However, its bottomline was lower due to higher interest expenses. 
  • SGPL could continue to operate with losses until it manages to sign a long-term PPA, which might only happen in the next 2- 3 years. 
  • Sembcorp is in the midst of finalising its strategic review and is expected to announce the decision at end-FY17. 
  • We make no changes to earnings and maintain NEUTRAL with an unchanged TP of SGD3.20 (1% downside).



Core earnings of SGD208m. 

  • Sembcorp Industries’ (Sembcorp) revenue for 1H17 came in higher by 18% YoY, driven by higher utilities offsetting the lower revenue from its marine segment. 
  • The higher revenue for utilities was attributed to the higher high sulphur fuel oil (HSFO) prices in Singapore, higher plant load factor (PLF) for Thermal Powertech Corporation India Ltd (TPCIL), start-up of Sembcorp Gayathri Power (SGPL) and construction revenue from the Myingyan, Myanmar and Sirajganj, Bangladesh power projects. 
  • Net profit came in at SGD174m, stripping one offs such as the refinancing cost of India power plants, core profit came in at SGD208m, -15% YoY. 
  • Despite the increase in topline and EBITDA at 16% YoY, its bottomline was lower due to higher interest expenses. 
  • Earnings came in line with ours and consensus.


Utilities supported by Singapore. 

  • Net profit for utilities continue to be supported by its Singapore operations, contributing 50% of utilities’ bottomline.


India continue to make losses, dragged down by SGPL. 

  • We understand PLF for both TPCIL and SGPL are higher QoQ but weak rates continue to dampen earnings for SGPL. We do not expect a long term power purchase agreement (PPA) to be signed by SGPL in the next 2-3 years, however the plant is running at cash cost. 
  • The refinancing of the India operations’ borrowings should help lower interest expenses going forward.


Expected weakness from marine. 

  • Orderbook for marine stands at SGD3.6bn.
  • The company continues to market its proprietary Gravifloat technology although it would take time for that to translate into orders. Core profit for marine returned in the black after registering losses in 1Q17. 
  • We expect the segment to play catch up in 2H17F with its pipeline of projects.


Maintain NEUTRAL. 

  • Sembcorp declared an interim DPS of SGD0.03 to be paid on 31 Aug 2017. 
  • Earnings remain unexciting for the company, we expect SGPL to continue operate with losses unless a long-term PPA is signed, which might only happen in 2-3 years. 
  • Earnings from its marine segment are expected to continue to be sluggish due to a low demand for its offshore and marine assets. 
  • We make no changes to earnings and maintain our SOP-based TP of SGD3.20.




Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-04
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.200 Same 3.200



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