SEMBCORP INDUSTRIES LTD
U96.SI
Monetising SembSita
- Propose to divest 40% stake in SembSita to JV partner.
- Expect net disposal gain of S$350m by end of 4Q15.
- Potential upside to DPS by 6-7 Scts; lifting dividend yield from 4% to 6%.
- Reiterate BUY; TP S$4.00.
Unlocking value in SembSita.
- Sembcorp Industries Ltd (SCI) announces that its wholly-owned subsidiary, Sembcorp Environment Pte Ltd, has signed an agreement to divest its 40% stake in Australian waste management company - SembSita Pacific Pte Ltd (SembSita) to JV partner Suez Environnement Asia Ltd (currently holding a 60% stake in Sembsita).
- The deal is subject to Foreign Investment Review Board approval in Australia, and is expected to be completed by 4Q15.
An attractive deal.
- The cash consideration of A$485m (approximately S$482m) was arrived at based on a combination of DCF evaluation and relevant valuation multiples. This translates into an attractive valuation of c. 3.4x P/BV and 20x FY15 PE (based on annualised 1H15 earnings of approx. S$12m). The divestment is positive, allowing SCI to unlock value of its investment and recycle capital.
- If completed by end of 2015, the expected net gain of S$350m will lift SCI’s current forecasted PATMI from S$738m to S$1,088m. However, recurring income could be lowered by approx. S$30m pa thereafter, in the absence of contribution from SembSita.
- We are leaving our forecasts intact, pending completion of the deal.
Potential upside to DPS.
- Assuming similar 30-35% payout ratio, there could be an incremental 6-7 Scts DPS (from current expectation of 14 Scts for FY15), raising dividend yield from 4% to 6%.
- We also see price catalysts stemming from sequential improvement in SCI earnings and ramp-up of India power plant.
- Valuation is undemanding at 1.0x P/BV, c.10% below its GFC low.
- Reiterate BUY and SOTP-based TP of S$4.00.
Jonathan Koh CFA
DBS Vickers
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http://www.dbsvickers.com/
2015-09-21
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