Sembcorp Industries - OCBC Investment 2019-02-21: Repositioning On Track


Sembcorp Industries - Repositioning On Track

  • Utilities core FY18 net profit up 23%.
  • Urban devt record net profit.
  • Dragged by Marine.

Decent set of 4Q results

  • SEMBCORP INDUSTRIES LTD (SGX:U96) saw a 7% y-o-y rise in revenue to S$2.6b and a 10% decrease in net profit to S$106m in 4Q18, bringing full year net profit to S$347m, which was higher than ours (S$311m) and the street’s (S$314m) full year estimates.
  • Turnover from the utilities business was 13% higher in 4Q, due to higher revenue in Singapore (which benefitted from higher High Sulphur Fuel Oil price), higher volume and prices for India, higher generation from Teesside and contribution from UK Power Reserve which was acquired in 2Q18. There was also better performance by Marine.
  • For 4Q, Utilities contributed net profit of S$65m, while Urban Development turned in S$33m; Marine contributed S$1m.

Good FY18 performance excluding Marine

  • For the full year, net profit from Utilities more than doubled to S$312m, with its India operations achieving turnaround to profitability; India delivered net profit of S$47m in FY18. If we were to exclude one-off items, net profit for Utilities had increased by 23% to S$321m for the year. Urban Development performed well, turning in a record net profit of S$86m, driven mainly by land sales in Vietnam and China.
  • Unsurprisingly, the Marine business recorded a net loss of S$48m. Excluding the Marine segment, the group delivered profit growth of 75%, with net profit at S$395m compared to S$226m in FY17.

Mixed outlook for different segments

  • Looking ahead, management mentioned that the utilities business is consolidating and is expected to deliver a steady performance in 2019.
  • In Singapore and China, underlying performance should remain steady, while the India energy business is expected to improve, underpinned by a positive long-term outlook for the India power market. The O&M sector, however, remains in a down cycle.
  • As for Urban Development, earnings growth is expected to continue this year, supported by a strong orderbook in Vietnam and the recognition of income from the sale of a residential development in China.
  • The group has declared a final dividend of 2.0 cents per share (same as 2H17), bringing full year dividend to 4.0 cents (vs. 5.0 cents in FY17).
  • We maintain our Fair Value of S$3.30 on Sembcorp Industries.

Low Pei Han CFA OCBC Investment Research | 2019-02-21
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