Sembcorp Industries - Maybank Kim Eng 2015-09-21: Pay Day from Associate

SEMBCORP INDUSTRIES LTD U96.SI 

Pay Day from Associate 

  • SCI is divesting 40% associate, SembSita, for a net SGD350m gain. We adjust FY15E/16E net profit by +46%/-4%. 
  • Sold at an implied 14.4x FY14 P/E, the high end of industry P/Es, we see this as a decent deal. Proceeds could be reinvested in new businesses or special dividends. 
  • We raise our SOTP TP from SGD3.60 to SGD3.67 for the gain. 
  • Still, maintain HOLD on Marine concerns and a lack of near term catalysts for Utilities. 


What’s New 

  • SCI intends to divest its 40% stake in SembSita to Suez Environment Asia Ltd. SembSita is an Australia-based integrated wastemanagement company. Suez holds the other 60% stake and has approached SCI for the sale. The cash consideration of AUD485m (SGD482m) would net SCI a handsome gain of SGD350m. The transaction is expected to be completed by 4Q15, subject to Australia’s Foreign Investment Review Board’s approval. 

What’s Our View 

  • SembSita contributed SGD33.5m to SCI’s FY14 net profit. 1H15 contribution was only 2.3% of SCI’s SGD365.8m profit as SembSita’s 2H is usually stronger. The sale consideration works out to 14.4x FY14 P/E, which is at the high end of the industry’s low-to-midteens P/Es. As such, we deem it a decent deal. 
  • We think that SCI could use its cash proceeds of SGD482m (27.0 SG cts/share) to: 
    1. snap up other high-growth energy or water businesses; or 
    2. pay special dividends. 
  • SCI’s divestment of Sembcorp Bournemouth in the UK in Apr 2015 also netted the company SGD214m. 
  • We adjust FY15-17 net profits by -4% to +46%, after removing SembSita’s contributions and adding the SGD350m gain. Accordingly, we raise our SOTP TP from SGD3.60 to SGD3.67. 
  • We are still concerned about Marine’s outlook while Utilities lacks near-term catalysts. But with the cash proceeds, our base-case dividend yield of 4.3% is likely to be maintained, with the potential for upside surprises. 
  • Maintain HOLD. 


Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-09-21
Maybank Kim Eng Analyst Report HOLD Maintain HOLD 3.67 Up 3.60


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