Sembcorp Industries - UOB Kay Hian 2021-11-22: All About Transitioning To A Greener Future


Sembcorp Industries - All About Transitioning To A Greener Future

  • Sembcorp Industries hosted a site visit to its 60MWp floating solar farm at Tengeh reservoir which highlighted its operational capabilities as well as its larger renewables plans both in Singapore and regionally. In addition, we highlight Sembcorp Industries’s acquisition of a portfolio of Chinese wind and solar assets totalling 658MW for RMB3.3b (S$700m) which we view as a fair valuation.
  • Maintain BUY.

An illuminating site visit to Sembcorp Industries

  • We visited Sembcorp Industries (SGX:U96)'s 60MWp floating solar farm at the Tengeh reservoir in the northwestern part of Singapore. With 122,000 solar panels covering around 30% of the reservoir and built and implemented over a challenging period during COVID-19 pandemic in 2020 and 2021 (notably without any delays to the original timeline), the facility is a testament to Sembcorp Industries’s operational and managerial capabilities. Importantly, it is a showcase of what the company can export to its other overseas business segments and partners in terms of knowledge, technology and project management.
  • Further growth in solar business in Singapore. With the maximum 30% coverage of the reservoir already achieved, expansion at Tengeh is not possible. However it is our understanding that there will be tenders for floating solar farms in the near to medium term with the Kranji and Seletar reservoirs as potential locations at 100MWp each. For Singapore as a whole, it is targeting 2GW of renewable generation by 2025 and with the current 1GW of operational capacity, Sembcorp Industries’s growth within its key home market appears bright.

Wind and solar acquisition in China moves Sembcorp Industries further in the right direction.

  • At an acquisition multiple of around US$1.98m per MW, we view Sembcorp Industries’s acquisition of not can apply for such subsidies under China’s Renewable Energy Development Fund.

Asset quality appears good with growth upside.

  • On the analyst call, Sembcorp Industries's management increase of 169% y-o-y and an increase in volume of 15% over the same period. Deal value for 1H21 has also topped pre-pandemic levels. The three largest renewables deals year-to-date in 2021 totalling US$7.5b accounted for 44% of total deals in 1H21.

Sembcorp Industries - Valuation

Adrian LOH UOB Kay Hian Research | 2021-11-22
SGX Stock Analyst Report BUY MAINTAIN BUY 2.590 SAME 2.590