Sembcorp Industries - CIMB Research 2017-04-10: Stronger winds in India

SEMBCORP INDUSTRIES LTD U96.SI

Sembcorp Industries - Stronger winds in India

Sembcorp Industries (SCI) is adding about 250MW of wind power in India, bringing total wind capacity to c.1,220MW (including those under development).
At a lower tariff of 3.46 Rs/unit, we estimate the current project to bring in S$3m-4m of profit from FY19, adding 23% to its current profitable wind business, SGI.

Maintain Hold and target price (S$3.51), still based on SOP.
Re-rating catalysts include
1. a long-term PPA for Sembcorp Gayatri Power (SGPL), and
2. spillover from Sembcorp Marine (SMM)’s orders.

SCI’s wind division in India, Sembcorp Green Infra (SGI), was awarded a project to build a new project with close to 250MW capacity. The project will be located in Tamil Nadu and connected to India’s Central Transmission Utility. The power will be sold to Power Trading Corporation under a 25-year long-term PPA.
The project, costing Rs19bn (S$405m), will be developed in phases and fully commissioned between Sep 18 and Mar 19, in time for the high wind season following 2Q17. It will be 70%-funded by project financing.
Four other power players, including Mytrah Energy, Inox Wind and Ostro Kutch Wind, each snapped up 250MW of similar contracts in this 1,000MW maiden wind auction in India, conducted by Solar Energy Corp of India.
Including this, SGI’s total wind capacity will expand to above 1,200MW (including those under development). As of end-16, SGI had operating wind capacity of 788MW.

The reported tariff for the project is c.3.46 Rs/unit, lower than the current average feed-in tariff of c.5 Rs/unit.
We estimate the new 250MW wind power to add c.S$3m-4m of net profit to SGI.
Based on 788MW operating capacity, SGI delivered S$13m of net profit in FY16 and we expect it to grow to S$19m by end-17 with 970MW operating capacity.
SCI is working closely with the equipment supplier to maximise utilisation of the assets. The key to ensuring higher returns is for the project to be stationed at highwind areas. Wind power is dominant in Tamil Nadu, with above 30% share in overall wind capacity installed in India.
SCI also intends to take over the operational and maintenance portion of the contract.

SCI will report its 1Q17 earnings on 3 May 17. We estimate net profit came in at c.S$80m (-25% yoy) and utilities net profit at c.S$52m (-30% yoy).
Utilities Singapore should see stable earnings of c.S$37m, with higher vesting contracts (25%). China’s profit likely shrank to S$16m without the contribution of Yan Cheng but we remain watchful on gestation costs for the Chongqing coal power plant amidst its high coal feedstock.
We estimate c.S$25m of losses in India, with seasonally weak wind power from SGI.
Thermal Powertech Corporation India Limited (TPCIL) deliver steady qoq profit while losses should persist for Sembcorp Gayatri Power (SGPL) as it has no long-term PPA, although IEX prices have inched up qoq to 2.91 Rs/unit (from 2.81 Rs/unit in 2016).

LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-04-10

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