Sembcorp Industries - RHB Invest 2016-05-31: Operating A Power Plant

Sembcorp Industries - RHB Invest 2016-05-31: Operating A Power Plant SEMBCORP INDUSTRIES LTD U96.SI 

Sembcorp Industries - Operating A Power Plant

  • Sembcorp Industries is currently building a USD300m gas power plant in the Myingyan district of the Mandalay division. The build, operate and transfer project will see Sembcorp Industries supply power to Myanma Electric Power Enterprise under a 22-year power purchase agreement. 
  • We maintain our BUY call on Sembcorp Industries and SOP-based TP of SGD4.00 (42% upside), driven by a strong pipeline of utilities projects.



First project in Myanmar. 

  • Sembcorp Industries will be building a 225 megawatt (MW) gas power plant in Myanmar for a cost of USD300m. The build, operate and transfer project will be the biggest gas-fired independent power plant in Myanmar. Sembcorp Industries will own 80% of the power plant while its partner, MMID Utilities, will be holding the rest of the stake. 
  • With completion expected in FY18, the power plant will supply power to Myanma Electric Power Enterprise under a 22-year power purchase agreement.


One foot in the door. 

  • We expect the plant to run at almost full capacity upon starting up, as it addresses the severe power deficit problem in Myanmar. Sembcorp Industries also sees this as a foothold for it to venture into other businesses in Myanmar, such as water and urban development. 
  • Considering the company’s track record in electricity generation, water management and urban development, we believe there would be plenty of opportunities for it to take part in the infrastructure development of Myanmar.


Pipeline of projects. 

  • Sembcorp Industries expects to add over 3,800MW of power and over 1.3 cu m per day of water and wastewater treatment capacity from FY16F to FY18F with a slew of projects in India, Singapore, United Kingdom, Bangladesh and Myanmar. 
  • Apart from thermal electricity generation from coal and gas, it is also developing its capability in renewable power with wind turbine projects in India and China as well as thermal energy from waste in Singapore and Teeside, UK.


BUY. 

  • Sembcorp now has 10,616MW of power general capacity, with 3,800MW coming online through FY18. It also has 9.2 cu m/day of water capacity, with 1.3 cu m/day in the pipeline. These should drive utilities earnings growth, netting out the weaker Sembcorp Marine (SMM SP, Neutral, TP:SGD1.51), which now appears clearly overpriced relative to its parent. 
  • Maintain BUY with SOP-based TP of SGD4.00. 
  • Key downside risk for the stock include further provisions from Sembcorp Marine.




Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-31
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 4.00 Same 4.00


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