Sembcorp Industries - OCBC Investment 2018-02-05: Warrants A Spot In Your Portfolio

Sembcorp Industries - OCBC Investment 2018-02-05: Warrants A Spot In Your Portfolio SEMBCORP INDUSTRIES LTD U96.SI

Sembcorp Industries - Warrants A Spot In Your Portfolio

  • Utilities and other assets undervalued.
  • Few peers with its track record.
  • Await strategic review.

Riding on the marine wave; talk about Indian IPO 

  • With growing optimism in the oil and gas industry, January has been a great month for stocks in the sector. YTD, share price of Sembcorp Industries (SCI) is up 18%, while share price of Sembcorp Marine (SMM) is up 50%. Keppel Corporation has also benefitted with a 20% rise in its share price
  • On 18 Jan 2018, there were also media reports that Sembcorp Industries is gearing up for an IPO of its Indian arm which could see it raise around US$500-600m.
  • On 19 Jan, Sembcorp Industries announced that it “continually evaluates various commercial and financial options for its businesses, and that at present there are no developments warranting an announcement”.

Undervalued utilities and other assets 

  • At current levels, Sembcorp Marine’s market cap is about S$5.8b compared to Sembcorp Industries’s S$6.4b. Excluding Sembcorp Industries’s 61% stake in Sembcorp Marine, this would leave S$2.9b in terms of “market accorded” value to Sembcorp Industries’s utilities, urban development and other assets, or about 0.6-0.7x book which seems low in our view. 
  • Possible reasons weighing on Sembcorp Industries could be
    1. uncertainty over the results of the strategic review,
    2. concern over price paid for Sembcorp Marine should there be a privatisation. 
  • Still, on a valuation basis, Sembcorp Industries’s ex-Marine assets look undervalued after the recent rally in Sembcorp Marine’s share price.

Few with its track record 

  • As a leading developer, owner and operator of energy and water assets with strong operational, management and technical capabilities, Sembcorp Industries has grown its operations to 14 countries and looks set to cement its presence in Asia. There are few companies that can match the group’s established track record in developing greenfield assets and it is unlike the typical utilities company which some view as yield plays. 
  • Meanwhile, the market is likely to continue to focus on the results of the strategic review, as 2018 could see a different Sembcorp Industries, as per our earlier report. 
  • We update various entities in our sum-of-parts valuation, including our fair value estimate for Sembcorp Marine, leading to a higher fair value estimate of S$3.95.

Low Pei Han CFA OCBC Investment | 2018-02-05
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 3.95 Up 3.590