OCBC Securities 2015-08-05: Sembcorp Industries: 2Q15 Results. Better QoQ and YoY performance. Maintain BUY.


Better QoQ and YoY performance 

 Good 2Q15 results 
 Concerns well-flagged 
 Interim dividend of S$0.05/share 

2Q15 results within expectations 

  • Sembcorp Industries (SCI) reported a 5.8% YoY drop in revenue to S$2.4b but a 24.9% increase in net profit to S$223.6m in 2Q15, such that 1H15 net profit accounted for 50% of our full year estimate. 
  • Stripping out one-off items such as disposal gains (S$54.7m gain on disposal of Sembcorp Bournemouth Water Investment) and fair value losses on financial instruments, we estimate core PATMI to be around S$191m, still within expectations. 

Better sequential performance in Singapore utilities 

  • As mentioned in our earlier report, SCI’s Singapore utilities business is more than the power business; the natural gas, water and solid waste treatment and management segments are also important contributors. 
  • Indeed, in 2Q15, the utilities segment was boosted by better performance in the solid waste division with favourable contract renewals, bringing net profit for Singapore utilities to S$36.4m in the quarter, compared to S$30.9m in 1Q15. 

Overseas utilities and urban devt also better 

  • As for overseas utilities, net profit was also higher at S$60.6m vs $50.1m in 1Q15. 
  • The first unit of the TPCIL power plant in India commenced operation in 1Q15, and the plant will be in full operation by 3Q15. 
  • In the urban development segment, net profit increased to S$11.9m in 2Q15 due to higher contribution from the Nanjing and Chengdu projects in China. 

Negatives priced in; look beyond current volatility 

  • Looking ahead, intense competition in the power market is likely to persist, and low oil prices also mean that the marine division may continue to be a drag. 
  • However, we believe that these concerns have already been priced in. 
  • Meanwhile, an interim dividend of S$0.05/share has been declared, same as last year. 
  • Updating our sum of-parts valuation with a lower fair value estimate of Sembcorp Marine, our fair value for SCI drops from S$4.40 to S$4.31. 
  • Maintain BUY. 

Low Pei Han | http://www.ocbcresearch.com/ OCBC Investment Research 2015-08-05
BUY Maintain BUY 4.31 Down 4.40