Sembcorp Industries - RHB Invest 2016-10-31: Expecting a Stronger 2017

Sembcorp Industries - RHB Invest 2016-10-31: Expecting a Stronger 2017 SEMBCORP INDUSTRIES LTD U96.SI

Sembcorp Industries - Expecting a Stronger 2017

  • We expect Sembcorp Industries’ short to mid-term performance to be driven by its utilities segment as several overseas power plants commence operations, while its marine arm takes a back seat. 
  • The marine segment’s orderbook stands at SGD5.2bn but orderbook replenishment continues to be slow, with only SGD320m added YTD. On a standalone basis, NPV for the utilities business stands at SGD2.70/share. 
  • Maintain BUY with revised SOP-based TP of SGD3.40 (from SGD3.90, 37% upside).

Utilities to remain earnings driver for Sembcorp Industries. 

  • The third unit of its power plant in India and the first unit of the Chongqing power plant are expected to start commercial operations in 4Q16. 
  • Overseas operations (where net profit was up 20% in 9M16) are expected to continue to drive group earnings, underpinned by better performances in China, India and Middle East.

Mid-term outlook for marine still sluggish. 

  • Sembcorp Marine’s (SMM SP, NEUTRAL, TP: SGD1.33) orderbook stands at SGD5.2bn, excluding Sete Brasil’s drillships contracts worth SGD3.2bn. 
  • The fabrication arm is shifting its focus to non-drilling solutions although this has yet to bear fruit, with YTD orderbook replenishment coming in at only SGD320m.

Steady performance at urban development. 

  • Vietnam continues to drive the urban development arm’s performance. Net orderbook for the segment stands at 277 hectares, 76% of which from industrial and business, and the remainder from commercial and residential development.

Maintain BUY with SOP-based TP of SGD3.40. 

  • Sembcorp Industries’ slew of utilities projects in the pipeline should continue to drive earnings, cushioning weakness at its marine business. 
  • Key risk to earnings includes lower-than- expected orderbook replenishment.

Singapore Research RHB Invest | 2016-10-31
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 3.40 Down 3.900