Sembcorp Industries - RHB Invest 2016-03-01: Pictures Of The Visible Future

Sembcorp Industries - RHB Invest 2016-03-01: Pictures Of The Visible Future SEMBCORP INDUSTRIES LTD U96.SI 

Sembcorp Industries - Pictures Of The Visible Future 

  • We had the opportunity to see Sembcorp’s new TPCIL power plant in Nellore, Andhra Pradesh, India. 
  • We observed Unit #1 running at 95-99% of its rated 660MW capacity while Unit #2 was in the process of being ramped up to > 91% from 83%. This power plant should be healthily profitable for the firm from FY16 onwards. 
  • Off in the distance, we saw its NCC power plant, which should come online in Sep 2016. Construction appeared to be well on track. 


Words from the ground. 


  • At the hotel, we spoke with local staff and learnt that, as recently as 2011-2012, Chennai suffered from brownouts/blackouts, with urban/rural areas hit by 2+/8+ hours respectively of no electricity/day at times. The situation has improved, with no electricity rationing last year. 
  • The adjacent Andhra Pradesh state trails Chennai somewhat, with the former being the ricebowl of India (in fact, Nellore means exactly this) and the latter a highly-urbanised city. 
  • In a region where temperatures soar to as high as 49 degrees Celsius in summer (during which cricket players insanely continue their 12+ hours games), there is a clear need for electricity for fans and air conditioning. 

Sea of humanity at opening ceremonies. 

  • On Saturday, two adjacent power plants were officially opened – the state government’s 1,600 megawatt (MW) AP Genco plant and Sembcorp Industries’ (Sembcorp) 1,320MW Thermal Powertech Corp India Ltd (TPCIL). 
  • On the way in, we observed a veritable sea of humanity outside AP Genco as local politicians offered their constituencies a hearty meal. 
  • From the crowd, it was but a small stretch of the imagination to see the future of electricity and waste-management demand in India, and for higher levels of urbanisation, modern housing, etc. 
  • Sembcorp would certainly not lack for opportunities in India for its utilities, urban development and property divisions. 

TPCIL now running at maximum capacity. 

  • At the neatly-built plant, we observed Unit #1 running at 630-655MW of its rated 660MW capacity. Unit #2, sitting a mere 50m away, increased its output to > 600MW from 550MW right before our eyes. 
  • From a short conversation with the engineers, we learnt that: 
    1. the power plant adjusts its output according to the demand schedule from the local government, and 
    2. Unit #2 was being ramped up to 650MW. 
  • It appears that Sembcorp has successfully sold the remainder of its capacity that was not covered yet under the long-term power purchase agreement (PPA) as at mid-February (when management reported overall capacity usage at >85%). 

NCC Power Project (NCCPP) well on track. 

  • Sembcorp’s NCCPP, a mirror-image of TPCIL, is on track to come online in Sep 2016. It is to use part of TPCIL’s infrastructure, hence achieving some economies of scale . 
  • Maintain BUY on Sembcorp with a SGD4.00 TP as we see deep value in its growing overseas utilities business.



Lee Yue Jer CFA RHB Invest | http://www.rhbinvest.com.sg/ 2016-03-01
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 4.00 Same 4.00


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