Sembcorp Industries - RHB Invest 2019-11-15: Weak 3Q19, FY20 Looks Promising; Keep BUY


Sembcorp Industries - Weak 3Q19, FY20 Looks Promising; Keep BUY

  • Keep BUY and SOTP-derived SGD2.68 Target Price, 17% upside and c.2% FY19F yield.
  • The 13% y-o-y fall in 3Q19 net profit was mainly attributed to the marine sector’s net loss almost doubling y-o-y during this period. The energy and urban wings are seen as underpinning Sembcorp Industries’ performances going forward.

The Singapore energy segment’s 4Q19 will likely be weak due to shutdowns.

  • This operation’s 3Q19 energy net profit of SGD39m was up 15% y-o-y vs recurring numbers in 3Q18 – accounting for 55% of SEMBCORP INDUSTRIES (SGX:U96)’s overall earnings during this quarter. See Sembcorp Announcements.
  • For 4Q19, there will be major maintenance shutdowns for power generation assets here – e.g. its Banyan facility shutting down for 35 days – which will lower contributions.

SCI’s 3Q19 China energy segment booked SGD26m in net profit

  • Sembcorp Industries’ 3Q19 China energy segment booked SGD26m in net profit, or a 37% share of the company’s overall earnings for this quarter. This is flat when compared with recurring 3Q18 numbers.
  • Management’s guidance is for FY19 China energy net profit to be comparable with FY18’s numbers.

Increased capacity for the India energy market.

  • Sembcorp Industries has commissioned 357MW for the Solar Energy Corp of India (SECI) 2 and SECI 3 wind power projects in the South Asian nation YTD. This brings total commissioned capacity for SECI wind power projects to 607MW out of a total of 800MW.

Management expects the urban division’s earnings growth to continue into 2019.

  • This is underpinned by a strong orderbook in Vietnam, as well as recognition of 4Q19 income from the sale of a residential development in China, subject to legal completion.

A possible profitable FY20 for Sembcorp Marine should support earnings.

We forecast strong FY20 earnings growth.

  • Given the weaker-than-expected 3Q19 earnings, we cut FY19 net profit 10% to SGD352m. We expect a strong turnaround in FY20 earnings, with the marine business expected to return to profitability.

Our TP is SGD2.68, based on SOTP valuation.

  • The bulk of the value is derived from the energy business (60% share), with subsidiary Sembcorp Marine taking another significant 34% share. A 20% conglomerate discount is also factored in.
  • This Target Price implies FY20F P/E of c.10x, which is c.1SD below the 5-year historical average of 13.4x. See Sembcorp Share Price; Sembcorp Target Price.

Leng Seng Choon CFA RHB Securities Research | 2019-11-15
SGX Stock Analyst Report BUY MAINTAIN BUY 2.680 SAME 2.680