SEMBCORP INDUSTRIES LTD (SGX:U96)
Sembcorp Industries - Underlying Energy Strength Despite 1H20 Loss
- Sembcorp Industries (SGX:U96)'s 1H20 net loss of SGD131m – which included an exceptional loss of SGD191m – was a sharp reversal from 1H19’s SGD191m profit.
- Whilst we forecast an FY20 net loss, we remain positive on Sembcorp Industries on its energy and urban segments driving future growth, as well as the stoppage of bleeding from the marine business after the de-merger with Sembcorp Marine (SGX:S51).
- Keep BUY and SOP-derived SGD2.11 Target Price, 19% upside and c.2% FY21 yield.
Underlying strength from the energy business.
- The energy segment recorded a 1H20 net loss of SGD5m. Excluding exceptional items, this unit’s SGD156m net profit was down 15% y-o-y, mainly due to the adverse impact of COVID-19. Sembcorp Industries is strengthening its renewables portfolio, and was recently awarded a contract to design, build, own, and operate a 60MW- peak floating solar farm on the Tengah Reservoir. Sembcorp Industries is also actively supporting India’s renewable energy ambitions.
- India is major contributor to energy profit from operations (PFO), accounting for SGD186m, or 45% share of PFO before exceptional items. China accounted for a 17% share.
The urban segment’s 1H20 net profit doubled YoY
- Sembcorp Industries urban segment’s 1H20 net profit doubled y-o-y to SGD38m, driven by strong land sales at Nanjing Eco Hi-tech Island and Kendal Industrial Park. However, there was lower demand in Vietnam due to COVID-19.
The marine segment’s loss was a major setback.
- Weak marine revenue contributed to the overall 1H20 topline softness. Sembcorp Marine (SGX:S51) (BUY, target price S$1.55, see report: Sembcorp Marine - RHB Invest 2020-07-16: COVID-19 Losses, But Projects Not Cancelled; BUY), which is 61% owned by Sembcorp Industries, recorded sharp 1H20 losses. However, when the de-merger is completed, the latter will no longer have shares in the former. Hence, subsequent marine sector weakness should not affect Sembcorp Industries.
We now forecast an FY20 net loss of SGD30m
- We now forecast an FY20 net loss of SGD30m vs our and consensus’ FY20F pre-results profit expectations of SGD315m and SGD295m.
- For FY20, management guided for losses, but expects positive operating cash flows. Excluding the exceptional items, we forecast recurring FY20 net profit of SGD186m (1H20: SGD60m). We also estimate FY21 recurring earnings to double y-o-y.
Target Price for Sembcorp Industries
- Our Target Price is SGD2.11, using SOP valuation and assuming a de-merger. The bulk of the value is derived from the energy business (55% share), and we assume no conglomerate discount post the de-merger.
- 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
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https://www.rhbinvest.com.sg/
2020-07-20
SGX Stock
Analyst Report
2.110
SAME
2.110
