Sembcorp Industries - CGS-CIMB Research 2019-09-27: Postcard From Vietnam ~ Preferred Park


Sembcorp Industries - Postcard From Vietnam: Preferred Park

  • Sembcorp Industries’ urban development in Vietnam is a direct beneficiary of the trade tensions as the country is preferred by MNCs for expansion in ASEAN.
  • Our ground checks showed that VSIP is a highly-preferred industrial park and township master developer among international and local companies.
  • Urban development is a self-sustained division with a recurring income base and good potential, in our view. It contributed to 25% of Sembcorp Industries’ FY18 profit.

Established track record

  • We visited SEMBCORP INDUSTRIES (SGX:U96)’s urban development industrial park and integrated township in Binh Duong, 1.5 hours’ drive north of Ho Chih Minh. VSIP is 49%-owned by Vietnam state-owned enterprise Becamex IDC Corporation, 49% owned by Sembcorp Development.
  • VSIP I was the maiden industrial park (500 ha) developed in 1996, fully sold and occupied. We also visited VSIP II, a 40-minute drive from VSIP I. Most tenants in VSIP Binh Duong are in light industries, electronics and precision engineering. Notable clients include KingMaker, Vinamilk, Yakult, Omron, Mapletree Logistics, P&G and Nissin. Korean and Taiwanese companies account for 30% of MNCs, Japanese 20%, Vietnamese 15%, Singaporean 10% and Chinese less than 3%.
  • VSIP has 7,409 ha of landbank (c.2,500 ha sellable land) for integrated township and industrial parks development. We like the positive cashflow and safe business model which entails land preparation for sale (2-3 years duration). Clients usually pay a 10% deposit to commit for the land and another 60% payable within one year after obtaining relevant regulatory approvals. Meanwhile, Sembcorp Industries would build out infrastructure and connectivity to prepare the land.
  • Our ground checks with locals showed that VSIP is one of the most preferred industrial parks and township master developers due to its reliability, quality and efforts to push through sustainability (renewable energy) concepts.

Vietnam is a key market to benefit from the trade war

  • Urban development generated S$86m net profit in FY18 (FY17: S$83m), with Vietnam and China contributing 90% of urban development net profit in FY18. We think growth prospects can be sustained on the back of 504 hectares of order book (deposits paid) in urban development to be recognised over the next 2-3 years. Management targets to sell 200-300ha of land p.a. with the need to replenish 1,000 ha of land p.a.
  • We believe urban development is in a sweet spot to ride on the potential rise in MNC investments in Vietnam as a result of the trade war. In the past two years, Vietnam has been a preferred location in ASEAN over Thailand and Indonesia for its relatively stable currency, social sentiments and politics. Key concerns are higher logistic costs (freight forwarding, trucking, port congestion), rising labour costs and power shortages.
  • We also visited two residential projects. Habitat (55% owned) is located in VSIP I with 1,500 affordable condominium units that have seen a c.40% surge in ASP since 2017 to US$1,400/sm. Demand has been strong with the latest phase, 3a, launched (390 units) with c.79% committed with deposits. Sun Casa (383 units) is located in VSIP II, 100%-owned landed gated projects to be completed in 2020. ASP for 180 sm IR prices at US$80k. We believe investors may have under-appreciated urban development potential given its entrenched position.


  • Sembcorp Industries' NAV as of 1H19 stood at S$873m (S$0.50 per share). Maintain ADD with an unchanged Target Price of S$2.83 based on SOP. See Sembcorp Industries share price.
  • Catalysts include stronger profit from urban development and India utilities.

LIM Siew Khee CGS-CIMB Research | 2019-09-27
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