Sembcorp Industries - CGS-CIMB Research 2019-11-15: India Profitable, Direction On Sembcorp Marine Is Key


Sembcorp Industries - India Profitable, Direction On Sembcorp Marine Is Key

Energy beat our expectations 2 quarters in a row despite Sembcorp Marine loss

  • We consider SEMBCORP INDUSTRIES (SGX:U96)’s 3Q19 net profit of S$71m (-27% q-o-q, -23% y-o-y) as a beat although Sembcorp Marine missed significantly (wider-than-expected loss of S$52m recently).
  • Sembcorp Industries’ 9M19 net profit of S$262m formed 66%/69% of our/Bloomberg consensus FY19 estimates. Energy profit of S$84m (-9% q-o-q, -17% y-o-y) was a positive surprise, thanks to a S$15m vendor settlement pursuant to the delayed start-up of its Myingyuan plant.

Singapore: stronger demand for power; planned shutdown in 4Q19

  • Singapore’s profit was S$39m (+8% q-o-q, -16% y-o-y), thanks to stronger demand of power as well as optimisation of gas position.
  • However, with the completion of utilities asset sale servicing a major customer, Jurong Aromatics Corporation (JAC), we expect some income gap starting 4Q19F. Also, the planned shutdown of its Singapore operations will take place and lasts up to 30 days in 4Q19, weighing on its 4Q19F profits. However, reported profit will be boosted by a one-off gain from the JAC assets.

India: stronger wind but SEIL 2 swung back to losses

  • India turned in a 3Q profit of S$19m (-55% q-o-q, -34% y-o-y), thanks to seasonally stronger wind resource as SGI reported a core profit of S$25m. SEIL core profit was stable q-o-q at S$10m. Stronger 3Q PLF of 90% (2Q19: 82%) was offset by provision for receivables (S$6m). It also received S$3m in partial claims for the previous turbine issue in 3Q. We expect more claims in 4Q19F or 1Q20F.
  • SGPL had a 3Q loss of S$16m (1H19: S$3m) with fewer short-term contracts, and lower spot prices (more hydro power generation in the monsoon season). We expect losses in 4Q19F as spot prices in Oct-Nov have been hovering at c.Rs2.80/Kwh, below the break-even level of Rs3.20/Kwh.

Good news: UKPR received approval from European Commission

  • UK posted 3Q19 loss of S$10m (-145% q-o-q, -175% y-o-y) which included UKPR loss of S$14m. Its Teeside operations recovered to a 3Q profit of S$4m (planned shutdown in 2Q19) and should remain profitable in the coming quarters. The European Commission on 24 Oct approved the UK market capacity market scheme. Sembcorp Industries will recognise about S$15m of the payment that it missed since 4Q18. We expect UKPR to contribute positively form FY20F on the back of this.

Trading at 10-year trough of 0.6x.

LIM Siew Khee CGS-CIMB Research | 2019-11-15
SGX Stock Analyst Report ADD MAINTAIN ADD 2.78 DOWN 2.830