Sembcorp Industries - UOB Kay Hian 2021-10-20: Towards A Brighter And Greener Future


Sembcorp Industries - Towards A Brighter And Greener Future

  • Sembcorp Industries presented at the Asian GEMS conference and highlighted its medium - to long-term plan to transition towards being a greener and more sustainable business. Near-term issues such as India’s power crisis and maintenance shutdowns at some power assets appear to be well understood by the market.
  • Maintain BUY.

Sembcorp Industries - A solid long-term play on the ‘greenification’ of energy.

  • Sembcorp Industries (SGX:U96) presented a compelling investment case as a long-term play on the energy transition from fossil fuels to renewables. As profiled in its May 21 Investor Day, Sembcorp Industries plans to transform itself from a developer of brown energy to green energy over the next four years to 2025. This includes plans to:
    1. increase its renewable capacity by 4x to 10GW,
    2. increase land sales of its sustainable urban developments by 3x,
    3. lower its carbon emissions by 26%, and
    4. increase the share of its net profit from sustainable solutions to 70% from 2020’s level of 40%.

India’s current power crisis should have minimal impact on Sembcorp Industries.

  • Recent news articles indicate that India is facing a power crisis caused by erratic coal supplies. Sembcorp Industries stated that half of its India revenues are covered by Power Purchase Agreements which allow for cost pass-through, and more importantly that its operations in India remain stable at present as it has been able to secure coal supplies.
  • Of its two thermal coal power plants, P1 is mostly contracted and its coal costs can be passed through, while P2 operates in the merchant/spot market where spark spreads remain positive.

Strong validation from the debt market.

  • We highlight that Sembcorp Industries priced a S$675m 2.66% sustainability-linked note due inSingapore, India and Myanmar have been well executed and are on track to hit their respective deadlines.

Divestment of thermal assets – still a long-term plan.

  • During the investor presentation, Sembcorp Industries’s management the near-to-medium term, especially if it can successfully implement carbon-capture technologies to negate its CO2 emissions.

Committed to its UK business.

  • Sembcorp Industries stated that its UK battery in the UK could eventually be deployed in Asia to provide latency support.

Capex plans over 2021-25:

  • Sembcorp Industries stated that over the 2021-25 winning of the 400MW solar power project in Rajasthan in Jan 21.

The exit of various Singapore electricity retailers not a worry.

  • With the exit of Ohm Energy and iSwitch recently, Sembcorp Industries’s management stated that its electricity sales contracts are covered by its position as a power-generating company. It further noted that electricity sales account for a “very small” part of the company’s net profit in any case. It noted that Sembcorp Industries will overall benefit from the recent price spikes seen in the Uniform Singapore Electricity Prices; however, it also cast doubt on whether these spikes are sustainable in the medium-to-long term.

Sembcorp Industries - Valuation & Recommendation

Adrian LOH UOB Kay Hian Research | 2021-10-20
SGX Stock Analyst Report BUY MAINTAIN BUY 2.590 SAME 2.590