Sembcorp Industries - DBS Vickers 2015-09-21: Monetising SembSita

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 | http://www.dbsvickers.com/ 2015-09-21
DBS Vickers Analyst Report BUY Maintain BUY 4.00 Same 4.00


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