SEMBCORP INDUSTRIES LTD
U96.SI
Sembcorp Industries: Overseas utilities for growth
Muted year in 2015
Better overseas growth in 2016
Lower FV due to SMM
2015 – Local power business sees lower spreads; dragged by marine
- 2015 has been a relatively muted year in terms of earnings for Sembcorp Industries, as
- the Singapore power business was affected by an overcapacity issue which resulted in lower power spreads, and
- the marine segment also dragged overall profits down due to the weak operating environment.
- In addition, the Indian TPCIL plant saw some initial operating losses, which is not surprising given that the plant is within its first year of operations.
2016 – Better year for overseas utilities
- Beyond this, however, we expect 2016 to be a better year for the Indian plant as it overcomes teething problems; management had also earlier guided that the plant should be close to breakeven this year.
- Other overseas projects should also provide earnings boost once they come online.
- In Singapore, stiff competition may persist in the domestic power market.
- In the longer term, SCI has been expanding its operations steadily over the years in both the utilities and urban development segments, and we are positive on the long-term prospects of the group, given its good track record and sensible strategy of pursuing emerging market growth.
Significant one-off gain in 4Q15 helps support dividend expectations
- Meanwhile, the group is expected to see a significant one-off gain this year of about S$350m from the disposal of its 40% stake in Sembsita Pacific (disposal proceeds S$489m). As such, concerns over a possible reduction of its dividend should be allayed from this move.
- However, with our recent decrease in fair value estimate for SembMarine, our SOTP-based fair value estimate for SCI also drops from S$4.03 to S$3.88.
- Maintain BUY; key risks include greater than expected earnings drops by SembMarine due to weak new order flows, uncertain Brazil situation and potential order cancellations.
Low Pei Han CFA
OCBC Securities
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http://www.ocbcresearch.com/
2015-12-04
OCBC Securities
Analyst Report
3.88
Down
4.03
