Sembcorp Industries - OCBC Investment 2020-11-09: Re-rating Continues

SEMBCORP INDUSTRIES LTD (SGX:U96) | SGinvestors.io SEMBCORP INDUSTRIES LTD (SGX:U96)

Sembcorp Industries - Re-rating Continues

  • Sembcorp Industries's share price continues to appreciate.
  • Dearth of earnings growth in SG industrials sector means few choices for the investor.
  • Need more concrete evidence of earnings growth in core utilities business subsequently.



Sembcorp Industries now trading around 1.0x book

  • Since our last HOLD-rated report “Broken Free” on 10 September 2020, Sembcorp Industries's share price has continued to appreciate and this is after it has risen by ~50% from our 9 June 2020 BUY-rated report. At S$1.66 (close of 6 Nov 2020), Sembcorp Industries (SGX:U96) is trading at 1.0x book, based on the pro-forma NAV/share of Sembcorp Industries as at end June 2020 (assuming the de-merger and rights transaction took place then) of S$1.67, which we view as fair.


Divestments as part of capital recycling efforts

  • Sembcorp Industries also recently announced the divestment of Aguas de Panama S.A. (APSA) for S$64m. APSA is a municipal water asset in Panama under a 30-year concession that commenced in 2002, and the disposal resulted in a net gain of ~S$21m.
  • Over the past 18 months, Sembcorp Industries has reduced or divested non-core businesses for ~S$441m. The re-allocation of capital into more promising businesses should help improve ROE over time.


Utilities to be weak in 2020

  • Even before COVID-19, the utilities business in certain countries was already relatively soft, such as in India and the UK due to individual industry-specific factors. A resurgent COVID-19 wave is a key risk.
  • In Singapore, energy demand was also impacted by the circuit breaker, lower gas sales and loss of profit from divested JAC assets. Utility assets are also getting older (c. < 20 years), and replacement capex could be required in the future.

Scarcity premium?






OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-11-09
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.63 DOWN 2.000



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