Sembcorp Industries - RHB Invest 2020-02-24: Value After Recent Share Price Weakness; BUY


Sembcorp Industries - Value After Recent Share Price Weakness; BUY

  • Keep BUY with new SOP-derived SGD2.33 Target Price from SGD2.68, 16% upside plus c.2% yield.
  • Sembcorp Industries (SGX:U96)'s FY19 net profit of SGD247m came in ahead of our SGD187m expectations. Excluding the one-time exceptional items, recurring FY19 net profit of SGD395m would be 17% higher y-o-y.
  • We remain positive on Sembcorp Industries with expectations of its energy and urban segments underpinning performance going forward.

Energy segment accounted for 91% share of recurring net profit.

  • Excluding exceptionals, the energy segment’s FY19 recurring net profit was SGD360m (+12% y-o-y), driven by better overseas performance.
  • Urban is a growing segment, accounting for another 30% recurring earnings share – with profit recognition from the property development Riverside Grandeur in Nanjing, China. Its marine segment incurred a recurring loss of SGD88m.
  • China is the largest contributor to FY19 energy recurring net profit, with a 29% share, with growth driven by renewable assets. China has overtaken Singapore, the leader in FY18. Singapore’s weak performance was due to its planned 4Q19 major maintenance of power generation assets.
  • India is the third largest contributor with a 28% share, after doubling its recurring net profit y-o-y. The SEIL Thermal Project 1 (P1) contributed to FY19 profit from operations of SGD213m, up 24% y-o-y.

Urban’s healthy orderbook to underpin future earnings.

  • In FY19, urban development completed and handed over Sembcorp Industries’s wholly-owned Riverside Grandeur residential development. Orderbook from Vietnam remained robust. Looking ahead, net orderbook of 423ha is to be recognised as land sales over the next 2-3 years.

Marine segment has total net orderbook of SGD2.4bn as at Dec 2019.

We forecast respectable FY20 earnings.

  • We cut FY20F net profit by 14% to SGD404m, as management guided a competitive energy business environment in Singapore and India’s 2020 energy performance to be flat y-o-y. Although we also cut FY21F net profit by 14%, net profit growth should be a respectable 10%.
  • Our Target Price is SGD2.33, based on SOP valuation. The bulk of the value is derived from the energy business (56% share), with subsidiary Sembcorp Marine taking another significant 34% share. A 25% conglomerate discount is also factored in. Our Target Price implies FY20F P/E of c.10x, which is below the 5-year historical average of 13.4x.
  • See Sembcorp Share Price; Sembcorp Target Price; Sembcorp Analyst Reports; Sembcorp Dividend History; Sembcorp Announcements; Sembcorp Latest News.

Leng Seng Choon CFA RHB Securities Research | 2020-02-24
SGX Stock Analyst Report BUY MAINTAIN BUY 2.33 DOWN 2.680