Sembcorp Industries - RHB Invest 2016-08-03: Expect a Better 2H16

Sembcorp Industries - RHB Invest 2016-08-03: Expect a Better 2H16 SEMBCORP INDUSTRIES LTD U96.SI 

Sembcorp Industries - Expect a Better 2H16

  • Sembcorp Industries’ utilities segment will take the main stage and drive earnings growth as several projects come to fruition. 
  • Although rig deliveries for its marine business are slowing down, demand for floaters & platforms remains strong. 
  • It also declared a DPS of 4 cents. Its marine wing’s orderbook (ex-Sete Brasil) stands at SGD6bn. 
  • On a standalone basis, NPV for the utilities business stands at SGD3.17. 
  • Maintain BUY, with a SOP-based SGD3.90 TP (from SGD4.00, 40% upside).

Utilities the main driver. 

  • This segment continues to be the main growth driver for Sembcorp Industries. 
  • We expect its India thermal power business to do better in 2H16 from a better plant load factor as well as the commencement of two short-term power purchase agreements (PPAs). 
  • Commercial operations date (COD) of the 660 megawatt (MW) Unit 3 and Unit 4 will be in 2H16. The company is also actively looking for long-term PPAs.

Marine still sluggish. 

  • Unit Sembcorp Marine’s (SMM SP, NEUTRAL, TP: SGD1.51) rig segment is still weak due to the oil & gas market’s downturn. However, its floaters & platforms business is still going strong, with five projects expected to be delivered in 2H16. 
  • Sembcorp Marine’s orderbook, ex-Sete Brasil’s drillships, stood at SGD6bn as at 1H16.

Urban development. 

  • The key driver for this segment continues to be the Vietnam market, as demand for industrial land continues to be strong. Net orderbook for this segment stands at 225ha.

Maintain BUY, with a SGD3.90 (from SGD4.00). 

  • Maintain BUY with an SOP- based TP of SGD3.90. Sembcorp Industries’ slew of utilities projects in the pipeline will be driving earnings, cushioning the weakness in the marine business. 
  • Lower earnings by 9% and 8% for FY16F-17F respectively will be due to slower marine business. 
  • Key risk to earnings will be a lower-than- expected orderbook replenishment.

Singapore Research RHB Invest | 2016-08-03
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 3.90 Down 4.00