Sembcorp Industries - OCBC Investment 2017-05-04: Positioning For The Future

Sembcorp Industries - OCBC Investment 2017-05-04: Positioning For The Future SEMBCORP INDUSTRIES LTD U96.SI

Sembcorp Industries - Positioning For The Future

  • Results in line.
  • Complete review of businesses.
  • Clarity in next few months.

1Q17 results in line with expectations 

  • Sembcorp Industries (SCI) reported a 12.9% YoY rise in revenue to S$2.1b and a 11.3% increase in net profit to S$119.1m in 1Q17, accounting for 27.0% and 26.5% of our full year estimates, respectively. 
  • Net profit from the utilities segment fell 27% YoY to S$55.3m while marine saw a 28% drop in net profit to S$24.1m. 
  • Urban development was the star performer at S$37.2m in 1Q17, compared to just S$1.2m in 1Q16. The surge in urban development was mainly due to higher land sales in China. 
  • Looking ahead, the centralised utilities, gas and solid waste management businesses in Singapore are expected to remain steady. However, the power business continues to face intense competition.
  • In India, SCI will continue to seek long-term PPAs for its second thermal plant, SGPL, but this may take some time given the relatively weak operating environment.

Undertaking complete review in next few months… 

  • Over the next few months, management will be undertaking a complete review of the group’s businesses and strategic direction. The focus will be on “performance, sustainability and value creation”. 
  • Recall that Mr. Neil McGregor became the new CEO of SCI on 1 Apr 2017. He has an extensive international track record in the energy and infrastructure sectors, as both a portfolio manager and as an operating CEO. He was previously the CEO of Singapore LNG Corporation and Managing Director of YTL PowerSeraya. His last role before joining SCI was Senior Managing Director and Head of Energy & Resources at Temasek International. 
  • We understand that the review will commence imminently and we think there should be more clarity after three to six months.

Should be in the interests of shareholders and stakeholders 

  • Whatever the results of the review, we believe that it should be taken in the interests of the group’s shareholders and stakeholders. There may also be value to be unlocked from the exercise. 
  • Meanwhile, we fine tune our estimates and our fair value estimate slips from S$3.69 to S$3.48. Maintain BUY.

Low Pei Han CFA OCBC Investment | 2017-05-04
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 3.48 Down 3.690