Sembcorp Industries

Kim Eng on 6 Aug 2012

Good set of results. Sembcorp Industries (SCI) reported another good set of quarterly results, led by growing strength in the Utilities segment. Revenue for 2Q12 rose to SGD2,668m (+23% YoY, +10% QoQ) with corresponding PATMI coming in at SGD190.7m (+9% YoY, +8% QoQ). 1H12 net profit made up 45% of our previous FY12F forecasts. Minor adjustments to our forecasts as we lower Marine segment figures but raise Utilities segment figures for FY12F. Maintain BUY with SOTP based target price raised to SGD6.40.

Sustained strength from Utilities. Utilities contributed the largest share of both revenue (56%) and PATMI (53%) in 1H12, surpassing that of the Marine segment. Other than a weaker performance from the Marine segment due to timing issues, the former’s better relative performance was attributed mainly to additional gas sales and higher HSFO prices for its Singapore operations, as well as contribution from the Salalah IWPP in Oman which commenced operations in May 2012.

Expect slightly stronger second-half. While we expect to see more incremental contributions in 2H12 from Salalah IWPP and the Banyan IWT plant that started operating in Aug 2012, this would be offset by a 40-day scheduled major plant maintenance in the Singapore cogen plant. A sturdier showing is also expected for the Marine segment in the 2H12. Overall, we expect 2H12 to be slightly stronger.

Growing recurring revenue base. With several projects in the execution pipeline, we see a growing recurring revenue base for SCI.  The company also aims to build a sizable renewable energy portfolio. The recently announced China Wind Farm assets acquisition should see approval in about a month’s time. SCI does not rule out making more acquisitions if an opportunity arises. Excluding SGD1.2b of project finance loans, it has net cash of SGD0.9b, which is mostly held under Sembcorp Marine.

Maintain BUY. With positive outlook in both Marine and Utilities segments, we reiterate BUY on SCI with SOTP target price raised to SGD6.40, mainly due to a 13% increase in FY12F PATMI estimate for Utilities.