Sembcorp Industries - Maybank Kim Eng 2015-09-29: Bangladesh foray

Sembcorp Industries - Maybank Kim Eng 2015-09-29: Bangladesh foray @ SG ShareInvestor SEMBCORP INDUSTRIES LTD U96.SI 

Sembcorp Industries (SCI SP) - Bangladesh foray 

  • To develop a greenfield 426MW power plant in Bangladesh at total cost of USD390m (SGD547m). 
  • 22.5-year PPA with Bangladesh Power Development Board. Maiden contribution expected only from 2018. 
  • HOLD, with SOTP TP of SGD3.67. We remain concerned about outlook for Marine, and Utilities lack near-term catalysts, but this stock is supported by 4.2% yield with upside potential. 

What’s New 

  • SCI is developing a 426MW power plant in the Sirajganj district of Bangladesh under a public-private partnership with the Government of Bangladesh. This will be a build-own-operate project where SCI will hold a 71% stake while North-West Power Generation Company, a Bangladesh Power Development Board subsidiary (BPDB), will hold the remaining 29%. 
  • The plant is expected to be completed in 2018 and has secured a 22.5-year PPA with BPDB. Total project cost is estimated at USD390m (SGD547m). 
  • SCI’s equity portion will be USD68m (SGD95m) with the remaining to be funded through project financing. 

What’s Our View 

  • We estimate initial contribution of SGD10-15m p.a to SCI’s earnings when operational in 2018, possibly rising to SGD25-30m p.a eventually. But the longer-term implication is that SCI could expand its Bangladesh footprint if this project progresses well, given the lack of domestic opportunities. 
  • Bangladesh plans to add 10GW of power capacity over the next decade and SCI is the first foreign investor to enter into a public-private partnership project. 
  • No change in our FY15-17E EPS and SOTP TP of SGD3.67 where we value Utilities at 11x FY16E P/E. 
  • We remain concerned about Marine’s outlook and see a lack of catalysts for Utilities in the near term. But 4.2% dividend yield is likely to be sustained with upside potential given recent proposed divestment of SembSita that could net the company SGD482m in cash. 
  • Maintain HOLD.

Yeak Chee Keong CFA Maybank Kim Eng | 2015-09-29
Maybank Kim Eng Analyst Report HOLD Maintain HOLD 3.67 Same 3.67