Singapore Conglomerate 4Q19 Preview - CGS-CIMB Research 2020-01-20: Better Q-o-q Showing

Conglomerate - CGS-CIMB Research  | SGinvestors.io KEPPEL CORPORATION LIMITED (SGX:BN4) SEMBCORP INDUSTRIES LTD (SGX:U96) SEMBCORP MARINE LTD (SGX:S51) SINGAPORE TECH ENGINEERING LTD (SGX:S63) YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

Singapore Conglomerate 4Q19 Preview - Better Q-o-q Showing

  • We expect better q-o-q earnings for industrials in the upcoming 4Q19F results season. SIA Engineering could beat consensus on continuous margin improvement.
  • Sembcorp Industries to deliver the strongest swing in quarterly profits from urban development and lower losses from Sembcorp Marine.
  • Keppel Corp and ST Engineering: stronger q-o-q and y-o-y.
  • Yangzijiang Shipbuilding to deliver steady q-o-q with more deliveries in 4Q19F, offset by lower HTM income.
  • Maintain Overweight on the sector.
  • Key catalysts: Orders and M&As.



KEPPEL CORPORATION (SGX:BN4): Business as usual

  • Keppel Corp (SGX:BN4) 4Q19 results on 23-Jan.
  • We project Keppel Corp’s 4Q19F NP grew 24% q-o-q and 47% y-o-y to S$197m, but FY19F NP could meet Bloomberg consensus forecast of c.S$823m and our S$713m. We expect all divisions to report stronger q-o-q for 4Q19F except infrastructure due to the absence of placement dilution gain from KDC in 3Q19.
  • Offshore & marine (O&M) should be stronger operationally with 4Q EBIT of c.6% as the yards ramp up work from orders secured in previous years. 2019 order win should be slightly above S$2bn, in line with our S$2.2bn forecast.
  • We keep our S$3bn FY19 order forecast intact. As with prior years, there could be year-end impairment at the associate level. Property will deliver stronger q-o-q earnings from more project completion in Vietnam as well as revaluation gains.
  • See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.


SEMBCORP MARINE (SGX:S51): Orders beat but operating leverage needs to improve



SEMBCORP INDUSTRIES (SGX:U96): Strong urban development

  • Sembcorp Industries (SGX:U96) 4Q19 results on 21-Feb.
  • We project Sembcorp Industries’ 4Q19F NP grew c.65% q-o-q to S$81m, driven by stronger earnings from urban development with the bumper development profits of Riverside Grandeur Nanjing as it achieved legal completion. Singapore operations were affected by a plant shutdown in Nov-Dec. India should deliver slight losses if there are no major write-backs. Plant load factor for SEIL 1 improved q-o-q while SEIL 2’s was weaker.
  • We expect utilities to achieve c.S$300m profit for FY19F, in line with its average annual profits since 2015 (incl. losses in India in 2016-2017). There are no further provisions to be made pertaining to the legal proceedings with its Chinese wastewater treatment JV. Total provision of S$54m which includes S$10m fine and S$44m settlement were gradually taken in from 2017 to 3Q19.
  • See Sembcorp Share Price; Sembcorp Target Price; Sembcorp Analyst Reports; Sembcorp Dividend History; Sembcorp Announcements; Sembcorp Latest News.


ST ENGINEERING (SGX:S63): Growth company



YANGZIJIANG SHIPBUILDING (SGX:BS6): Return of Chairman



SIA ENGINEERING (SGX:S59): Improvement in margins may be underestimated



Sector valuations attractive for most

  • From a valuation standpoint, the sector is cheap with most stocks either trading below book or its own 5-year historical average. Sembcorp Industries trades at 0.6x, or at trough mainly due to the unpredictability of a one-off and the absence of long-term power purchase agreements in India. We think Sembcorp Industries is a long-term restructuring play. The valuation of its energy (previously known as utilities) can be unlocked if the group reduces its reliance on Sembcorp Marine.
  • SIA Engineering and Yangzijiang Shipbuilding are also trading at a huge discount to peers. We like SIA Engineering for the M&A angle as well as its steady margin improvement. It is also backed by strong net cash of S$488m (as at end-2QFY3/20). The stock is trading at 16.5x CY20F P/E vs. ST Engineering’s 19x. We believe the success of Temasek’s partial offer in Keppel Corp and potential restructuring among the Singapore yards could spur more interests in Yangzijiang Shipbuilding. Yangzijiang Shipbuilding trades at c. 0.7x CY20F P/BV vs. Singapore yards' c.1.1x.





LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-01-20
SGX Stock Analyst Report ADD MAINTAIN ADD 8.360 SAME 8.360
ADD MAINTAIN ADD 2.780 SAME 2.780
HOLD MAINTAIN HOLD 1.260 SAME 1.260
ADD MAINTAIN ADD 4.470 SAME 4.470
ADD MAINTAIN ADD 1.450 SAME 1.450



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