Sembcorp Industries - OCBC Securities 2015-09-21: Continues to expand overseas

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SEMBCORP INDUSTRIES LTD U96.SI 

Sembcorp Industries: Continues to expand overseas 

 Operations continue to expand
 Overseas utilities still growing
 Lower fair value due to SMM

Unfazed by volatile stock market; continues to expand 

• The stock market, including SCI’s stock, has been relatively volatile; SCI’s share price dropped by about 34% from its 21 Apr peak to as low as S$3.08 on 24 Aug, before recovering ~14% to its current level. 
• However, it is still business as usual for SCI. In fact it has been expanding its operations, with the groundbreaking of its seventh Vietnam Singapore Industrial Park (VSIP) on 16 Sep and the commencement of full commercial operations for the second 660MW unit in its Indian power project, Thermal Powertech Corporation India (TPCIL). 

Develops 7th VSIP project in Vietnam 

• The first VSIP was established in 1996 in Binh Duong province near Ho Chi Minh City, and about 20 years later SCI is now developing its seventh VSIP project (VSIP Nghe An). 
• VSIP has attracted US$7.9b in total investment capital from over 583 companies in Vietnam, and the total gross area of the seven developments (including phase one of VSIP Nghe An) is 6,153ha. 

Completion of SCI’s first coal-fired power plant in India 

• Another significant development is the recent commencement of full commercial operations for the second 660MW unit in TPCIL. The ~US$1.5b coal-fired power plant investment (total capacity 1,320MW) has been operating steadily since Apr 2015 after completion of its first 660MW unit. 

Utilities under-appreciated; stub trading at about 7x P/E 

• The implied utilities stub is trading at about 7x P/E, close to one s.d below its historical average. 
• Considering that utilities is a less cyclical industry (and a growing one for the overseas segment due to rising emerging market demand), as well as SCI’s demonstration of its capabilities in developing and executing large-scale greenfield projects over the years, we believe that the utilities segment has been under-appreciated. 
• Meanwhile, as we recently lowered our fair value estimate for SMM, we update it in our sum-of-parts valuation for SCI, whose fair value now drops from S$4.31 to S$4.03. 
• Maintain BUY. 

Low Pei Han OCBC Securities | http://www.ocbcresearch.com/ 2015-09-21

OCBC Securities Analyst Report BUY Maintain BUY 4.03 Down 4.31