Sembcorp Industries - CIMB Securities 2015-09-14: Incredible India.


Sembcorp Industries Incredible India 

  • Expect c.80% of TPCIL’s power dispatch to be backed by long-term PPAs. 
  • India to contribute 10-20% of utilities earnings in FY16-17 with two power plants, offsetting the pressure of weaker power prices in Singapore.  
  • Utilities’ implied valuation is below historical average and regional peers. 

TPCIL 2nd 660MW met expectations of 3Q15 

  • COD SCI’s first Indian power plant, Thermal Powertech Corporation India (TPCIL) has achieved full commercial operation (COD) with the completion of its second 660MW unit, dissipating fear of execution hiccups. The US$1.5bn coal-fired plant has a total capacity of 1,320MW, with the first 660MW unit operating above 90% PLF since Jun 15. TPCIL recorded S$9m losses in 2Q15, capturing upfront start-up costs for unit 2. SCI has invested US$250m of equity in TPCIL with “mid-teens” ROE expected. 

Target 80% of long-term PPA for TPCIL 

  • Currently, unit 1 of TPCIL is backed by a 25-year PPA for 500MW with Andhra Pradesh’s power distribution companies at Rs3.70/unit (before escalation). It is bidding for another 600MW in Telangana on similar terms (we expect announcement by Dec 15). With this, c.80% of TPCIL’s PLF would be secured by long-term PPAs. Unit 1 has been firing on both domestic and imported coal. 

Second power plant – NCCPP on track to be ready by 2016 

  • The second power plant, NCC Power Projects Limited (NCCPP), is also a 1,320MW unit that will achieve phase 1 completion by 2H16. Given the learning curve encountered in TPCIL, we deem the targeted completion for NCCPP achievable. SCI is bidding for a 500MW long-term PPA in Andhra Pradesh, securing baseload ahead of the completion of NCCPP’s first unit. 

SGI to contribute S$8m-10m p.a. 

  • SCI’s 60%-owned wind and solar power plant in India, Sembcorp Green Infra (SGI) was acquired in Feb 14 with 516MW of capacity in operation and annual net profit of S$10.6m (100%). The plant has successfully achieved capacity expansion to 614MW as of 2Q15 and delivered S$3.8m of profit to SCI. With more expansion (target 757MW) underway, we expect SGI to contribute c.S$8m-10m profit to SCI p.a. 

India contributes 10% in FY16 and 20% in FY17 of profit to utilities 

  • As we have assumed zero earnings contribution from India in FY15, there could be a slight upside surprise if SGI performs better than expected and the second long-term PPA for TPCIL kicks in. We expect India as a whole to contribute profits of S$39m in FY16 and S$89m in FY17 with NCCPP coming onstream. 

Utilities undervalued vs. peers and historical 

  • We believe the market does not fully appreciate SCI’s utilities business as its implied valuation is 6x CY16 P/E, below its historical average of 7x and regional peers’ 12x. The implied P/BV of utilities is 0.5x vs. its ROE of c.9% Potential catalysts could come from stronger-than-expected power prices in Singapore and higher profits from India power plants. 
  • Maintain Add on SOP-based target price S$3.86.

LIM Siew Khee | CIMB Securities 2015-09-14
ADD Maintain ADD 3.86 Same 3.86