SEMBCORP INDUSTRIES LTD (SGX:U96)
Sembcorp Industries - Continues On Transformation Plan
- Supported by utilities.
- Sembcorp Marine faces thinning order book.
- Waiting for news on any restructuring.
Price action since last report
- When we issued our last report Sembcorp Industries - OCBC Investment 2020-02-07: Kitchen Sinking in February this year, the share price was S$2.16 and we had a HOLD rating on the stock. Since then, Sembcorp Industries share price has corrected by ~30% till S$1.50 as of 6 February close, along with the broader market (down 22% over the same period).
Energy (utilities) business still the main pillar of support
- Since the start of 2018, Sembcorp Industries (SGX:U96) has achieved total divestment proceeds of S$600m, exceeding its earlier S$500m target.
- Earnings meanwhile have been supported by the Energy business, where underlying profit grew 12% to S$360m in FY19, driven by better performance from overseas. However, if we were to include exceptional items, net profit would have been S$195m compared to S$312m. Impairments (which were flagged out in our earlier report in Feb) were the main reason for the difference.
- Since 2016, net profit from renewables has increased nearly five-fold to S$80m. The Urban business has also been a good contributor, with a record net profit of S$117m in FY19, up 36% with the recognition of profit from property development with the successful completion and handover of Riverside Grandeur in Nanjing, China.
Challenging for Marine; needs help
- The Marine business is still the main drag for the group and will remain so going forward, and at this point the market is likely just waiting for news on any potential restructuring. Oil prices are expected to remain low in the meantime, and the COVID-19 outbreak means that there is the risk of certain projects being delayed. As such, we recently lowered our fair value estimate for Sembcorp Marine (SGX:S51), and feed this into our sum-of-parts valuation for Sembcorp Industries. See report: Sembcorp Marine - OCBC Investment 2020-03-23: Challenging Outlook.
- We also update the value of the group’s other entities, and all these result in a lower fair value of S$1.63 for Sembcorp Industries.
- Meanwhile the group continues on its transformation plan, and we think to a certain extent this would require bigger moves related to its Marine business.
- See Sembcorp Share Price; Sembcorp Target Price; Sembcorp Analyst Reports; Sembcorp Dividend History; Sembcorp Announcements; Sembcorp Latest News.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-04-27
SGX Stock
Analyst Report
1.63
DOWN
2.130
