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

SEMBCORP INDUSTRIES LTD U96.SI

Better QoQ and YoY performance

 Good 2Q15 results

 Concerns well-flagged

 Interim dividend of S$0.05/share

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.

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.

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.

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