Sembcorp Industries (SCI SP) - UOB Kay Hian 2017-12-12: Staying Positive On India Despite Soft 4Q17 Outlook

Sembcorp Industries (SCI SP) - UOB Kay Hian 2017-12-12: Staying Positive On India Despite Soft 4Q17 Outlook SEMBCORP INDUSTRIES LTD U96.SI

Sembcorp Industries (SCI SP) - Staying Positive On India Despite Soft 4Q17 Outlook

  • Sembcorp Industries’ (SCI) plant load factors for its two power plants are shaping up for a soft 4Q, owing to scheduled maintenance shutdowns at both of its plants. While IEX continues to show improving spot electricity prices, the effective price that SGPL realises has remained suppressed in part due to earlier contracts entered into. 
  • A bright spot remains in the form of new PPAs potentially being signed at higher prices. No change to estimates.
  • Maintain BUY with unchanged target price of S$3.87.


India power plants’ PLF averaging ~80%. 

  • For the first two months of 4Q17, Sembcorp Industries’ (SCI) two power plants, Thermal Powertech Corporation India Ltd (TPCIL) and Sembcorp Gayatri Power Limited (SGPL), reported plant load factors (PLF) of 83.8% and 77.3% respectively. 
  • For TPCIL, this was down 2.4ppt on a yoy basis, due to the incidence of three outages lasting a total of 6-7 days during October. A similar comparison for SGPL could not be made as it had not been officially commissioned in the prior period.

Two maintenance shutdowns were made in 4Q17. 

  • The first was for SGPL’s Unit #4, which underwent a scheduled annual maintenance shutdown in 6-23 November (18 days). SGPL’s PLF for Oct 17 was at 64% as a result. 
  • The second was for Unit #2 for TPCIL, which started on 1 December and is expected to last 2-3 weeks.

IEX spot prices continue to see yoy improvement. 

  • Spot electricity prices continue to remain at levels above those seen in 2016. Prices are trading above the Rs3.0/kWh level, with Oct 17 and Nov 17 reporting average prices of Rs4.1/kWh (+48% yoy) and Rs3.5/kWh (+24% yoy) respectively.


4Q17 lining up to be another soft quarter. 

  • Monthly PLFs for TPCIL and SGPL typically average 75% during the month in which one unit undergoes a maintenance shutdown.
  • Based on the two months’ performance thus far, it is likely that the average PLFs for TPCIL and SGPL in 4Q17 is lining up to be lower at ~80% (PLFs for 3Q17 - TPCIL: 91%, SGPL: 73%), as reported by India’s Central Electricity Authority (CEA).

Short-term contracts continue to drag on realised, effective electricity prices.

  • Short-term contract levels for SGPL eased off in Oct 17 and provided greater exposure to the rising spot electricity prices. That said, the effective electricity price that SGPL gets continues to remain below the spot rate due to the lower electricity prices from short-term contracts entered into earlier.

Karnataka contract a potential catalyst. 

  • A bright spot remains in the form of the Karnataka PPA bid, which we understand is still pending confirmation. 
  • An earlier news report had pointed to the eight-month contract for the supply of 400MW of power at a price of Rs4.08/kWh. The higher price will significantly reduce losses, considering that 400MW represents ~30% of SGPL’s generating capacity of 1,320MW.


  • No change in earnings forecasts for 2017-19.


Maintain BUY with target price unchanged at S$3.87. 

  • Our SOTP target price of S$3.87 remains unchanged, pegged to 2019 valuations. The utilities segment is priced at an implied 9.2x forward PE, while Sembcorp Marine SMM is valued at S$2.10, based on 1.6x 2019F P/B.
  • While positive results have been slow to materialise, the utilities business is starting to be on the mend, albeit gradually. Meanwhile, marine earnings have bottomed and are likely to improve on the back of a strong pipeline of contract wins. 
  • Further re-rating catalysts could emerge from the outcome of the strategic review, which has been completed and is expected to be made known in early-18. 
  • Maintain BUY.

Foo Zhi Wei UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | 2017-12-12
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 3.870 Same 3.870