SEMBCORP INDUSTRIES LTD (SGX:U96)
Sembcorp Industries - Waiting For Details On Portfolio Transformation
- Sembcorp Industries (SGX:U96) reported core net profit of S$301m in FY20; net loss of S$997m including discontinued business and exceptional items.
- Utilities to see changes in customer profile in the UK and Singapore.
- Transforming portfolio to include more sustainable solutions; details later in May.
Sembcorp's price action since last report
- Since our last HOLD-rated report: Sembcorp Industries OCBC Investment 2020-11-09: Re-rating Continues, Sembcorp's share price rose 13% to hit S$1.88 on 27 November before correcting to S$1.76 as at 25 February 2021 close, which is about 6% higher than the level at which Sembcorp Industries was trading prior to our 9 November 2020 report.
Core net profit of S$301m in FY20; net loss of S$997m including Marine and exceptional items
- In its FY20 results, Sembcorp Industries's revenue fell 19% to S$5.4b while net profit (excluding exceptional items and the discontinued Marine business) was S$301m, compared to S$456m in FY19.
- Including the Marine business and exceptional items (~S$144m), Sembcorp Industries recorded a net loss of S$997m for FY20, compared to a profit of S$247m in FY19. This was mainly due to a non-cash, non-recurring fair value loss of S$970m following the completion of the distribution in specie of shares of Sembcorp Marine (SGX:S51) in September 2020 and a net loss of S$184m from the Marine business prior to the distribution.
Not expecting a significant recovery in utilities yet
- As mentioned in our earlier report, even before COVID-19, Sembcorp Industries's utilities business in certain countries was already relatively soft, such as in India and the UK due to individual industry-specific factors. Excluding exceptional items, net profit for the Energy business was S$297m compared to S$360m in FY19.
- Looking ahead, Sembcorp Industries will also be impacted by changes in customer profile in the UK and Singapore, as well as the loss of income from divested assets in Panama and Chile.
Focusing on sustainable solutions; details to be out later in May
- Sembcorp Industries will continue to transform its portfolio to focus on sustainable solutions; in 2021 about 200MW of renewable energy capacity is expected to come onstream. Currently, Sembcorp Industries’s energy generation portfolio relies more on thermal sources such as coal and gas.
- Meanwhile, from 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, Sembcorp Industries’s NAV/share has been revised to S$1.87 as at end Dec 2020. As such, we update our fair value estimate from S$1.63 to S$1.85.
- Sembcorp Industries has seen a turnaround in financial metrics due to the de-merger with Sembcorp Marine, but we would be even more encouraged if improvement in the future were to be driven by a fundamental pick-up in the utilities space.
- 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/
2021-02-26
SGX Stock
Analyst Report
1.85
UP
1.630
