Maybank Kim Eng 2015-08-05: Sembcorp Industries - 2Q15 Results. No Clear Catalysts Yet. Maintain HOLD.

No clear catalysts yet 

  • 2Q15 missed mainly on weak Marine earnings. Interim DPS maintained at SGD 5.0 cts.
  • Singapore operations still pressured. Overseas contribution insufficient to arrest declining Marine contribution.
  • Cut FY15-17E by 6-10% on lower Marine and Utilities forecasts. SOTP TP drops from SGD4.00 to SGD3.60. Maintain HOLD on 4.3% dividend yield.

What’s New 

  • 2Q15 PATMI of SGD223.6m (+24.9% YoY, +57.2% QoQ) was bolstered by an expected SGD54.7m gain from divestment of Sembcorp Bournemouth Water in the UK. Core PATMI missed expectations, mainly due to poor Marine performance. 
  • 1H15 headline PATMI of SGD365.8m (+0.5% YoY) formed 46/49% of our/consensus FY15E. Core Utilities net profit in 2Q15 rose 16% QoQ. But Singapore segment continues to face pricing pressure, with 1H15 segment net profit dropping 62% YoY to SGD25.1m. 
  • For new assets that contributed in 2Q15, India’s TPCIL recorded a SGD9m loss, attributed to initial startup cost, while Sembcorp Green Infra (SGI) delivered SGD4m of profits. 
  • Interim DPS maintained at SGD 5.0 cts. 

What’s Our View 

  • Management said that power prices in Singapore remain volatile and hard to predict. There may be further pressure when Hyflux’s 410MW Tuaspring Power Plant is commissioned in 2H15. 
  • In India, unit 2 of TPCIL should be operational by 3Q15, adding another 660MW. 
  • SCI expects to see profits in 2H15 when operations are ramped up. It would add another 1,320MW power capacity from neighbouring NCCPP project in 2016. 
  • We cut FY15-17E EPS by 6-10% to factor in lowered Marine forecasts while also trimming our Utilities forecasts. 
  • SOTP TP drops from SGD4.00 to SGD3.60. Stronger growth in Utilities from overseas assets could only come in 2016 but may be insufficient to arrest declining Marine performance. But a 4.3% dividend yield should provide support for share price. 
  • Maintain HOLD.

Analyst: Yeak Chee Keong, CFA