Sembcorp Industries - CGS-CIMB Research 2018-11-02: Decent Quarter, Focus On Boiler Shutdown


Sembcorp Industries - Decent Quarter, Focus On Boiler Shutdown

  • Sembcorp Industries’ 3Q18 reported profit of S$82m was in line with our S$78m expectation. 9M18 reported profit formed 77%/72% of our forecast and consensus.
  • India’s profit of S$29m was slightly above our S$25m expectation. We think the easing impact of low-tariff contracts and high spot prices helped.
  • Sembcorp Industries made an additional provision of S$25m for the Chinese wastewater treatment litigation. This is offset by c.S$15m medical waste divestment gain.

Results first take

  • Despite recording losses in Sembcorp Marine, Sembcorp Industries’ 3Q18 reported profit of S$82m was in line with expectations.
  • Reported profit for utilities was S$101m (+19% q-o-q, +21% y-o-y). This included S$13m gain from the construction of a centralised utilities pipeline for a Singapore customer.
  • Other one-offs are S$15m gain from the divestment of medical waste and S$25m provision for fines for off-specification claims for its Chinese wastewater treatment business. Excluding all these, utilities profit was S$78m, below our S$86m expectation.

India and China better than expected; UK/Americas saw losses

  • India was profitable at S$29m, thanks to
    1. seasonal strength in wind power,
    2. high spot prices seen in the past 2 months, and
    3. the gradual expiry of short-term contracts at lower tariffs by Sep 18.
  • Going into 4Q18, the focus will be on how long the unplanned shutdown (since early-Oct) for one out of two boilers for TPCIL will be. TPCIL generally delivers S$12m-14m of net profit per quarter.
  • China was stronger than expected, with profit rising 45% q-o-q and 121% y-o-y to S$22m.
  • UK/Americas recorded a small loss of S$3.2m. This was expected as UK Wilton had a 4-week planned shutdown.
  • Urban development saw a smaller profit q-o-q of S$8.1m (-77% q-o-q, -1% y-o-y) after a good showing (lumpy land sale) in 2Q18. Management expects the division to perform well in FY18. Note that it generated S$83m of profits in FY17. 9M18 profit from urban development stood at S$53m.

Valuation and recommendation

  • Maintain ADD with an unchanged SOP-based target price of S$0.00.
  • Key catalysts include consistent performance of the India operations and stronger-than-expected order wins in Sembcorp Marine.

LIM Siew Khee CGS-CIMB Research | 2018-11-02
SGX Stock Analyst Report ADD MAINTAIN ADD 3.490 SAME 3.490