Sembcorp Industries - CGS-CIMB Research 2018-07-10: Utilities At Undemanding Valuations

Sembcorp Industries - CGS-CIMB Research 2018-07-10: Utilities At Undemanding Valuations SEMBCORP INDUSTRIES LTD SGX:U96

Sembcorp Industries - Utilities At Undemanding Valuations

  • We expect Sembcorp Industries (SCI) to deliver a 2Q18 net profit of S$75m (-2% q-o-q, +35% y-o-y), after incorporating the loss in Sembcorp Marine (SMM).
  • Utilities should see a stronger profit of S$83m (+18%, +8% y-o-y) on the back of a seasonally-stronger wind load factor in SGI.
  • We think SCI stub valuations are undemanding at 0.3x CY18F P/BV (-2 s.d since 2010) vs. ROE of 7%. Catalysts could come from the listing of its India operations.



India to be profitable in 2Q18F

  • India should turn in a profit of S$5m-7m in 2Q18F led by a seasonally-stronger wind load factor for SGI. We also expect higher y-o-y contributions from SGI as a result of an increased stake from c.72% in 2Q17 to an effective c.93% currently.
  • Plant load factors (PLF) for TPCIL and SGPL also improved from c. 84% in 1Q18 to c. 90% in 2Q18. Spot power prices improved q-o-q to c.Rs4/kwh from c.Rs3.50/kwh in 1Q18. This analyst report is shared at SGinvestors.io.


Singapore stable, China could dip slightly on seasonal weakness

  • We expect Singapore to remain stable q-o-q with a net profit of c.S$35m supported by a stronger uniform Singapore energy price (USEP) trend. Average USEP prices grew 15% q-o-q on the back of the stronger oil price. We think this could provide some buffer to margins within the power segment.
  • We expect China earnings to come in at S$20m (-39% q-o-q, +120% y-o-y) on the back of lower PLF for Chongqing coming out of winter. This analyst report is shared at SGinvestors.io.


Small divestments and more investment in renewables

  • In 2Q18, Sembcorp Industries (SCI) made some progress in recycling the utilities asset base, hiving off some of the non-core assets, including the divestments of Sembcorp Tay Paper (S$6m) and medical waste division (S$20m). 
  • The divestment of municipal water operations in South Africa, Sembcorp Siza, is still pending the satisfaction of certain condition precedents.
  • Sembcorp Industries also announced a 50MW solar project contract from HDB and EDB which will commission by 2Q20, in addition to taking a 77% stake in Vellocet Clean Energy for A$5m to grow in the Australian power market. This analyst report is shared at SGinvestors.io.


Maintain ADD

  • We revise our EPS by 10-17% for FY18F-20F to incorporate the order win cut in Sembcorp Marine (SMM). Our Target Price remains unchanged at S$3.49, still based on SOP valuations.
  • Ex-SMM, its utilities business is trading at an undemanding valuation of 0.3x CY18F P/BV (-2 s.d since 2010) vs. ROE of 7%.





LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2018-07-10
SGX Stock Analyst Report ADD Maintain ADD 3.490 Same 3.490



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