Sembcorp Industries (SCI) reported a 30.8% YoY rise in revenue to S$2.97b and a 40.4% increase in net profit to S$254.4m in 3Q13, such that 9M13 revenue and net profit accounted for about 74% and 78% of our full year estimates, respectively. Stripping out one-off items, we estimate core net profit in 9M13 to be S$528.3m, accounting for about 71% of our full year estimate. The utilities business remained generally stable, but the UK side saw an impairment, mainly for power and steam assets. Meanwhile, with the deconsolidation of Sembcorp Salalah, SCI has turned from a net debt to a net cash position. We roll forward our valuation to FY14F earnings for the utilities business, and tweak our SOTP-based valuation to account for Salalah’s listing on the Muscat stock exchange, resulting in an increase in our fair value estimate to S$6.67 (prev. S$6.48). Maintain BUY.
3Q13 results largely in line
Sembcorp Industries (SCI) reported a 30.8% YoY rise in revenue to S$2.97b and a 40.4% increase in net profit to S$254.4m in 3Q13, such that 9M13 revenue (S$7.82b) and net profit (S$596.7m) accounted for 74% and 78% of our full year estimates, respectively. Stripping out one-off items such as gains from the IPO of Salalah (S$117.1m) and impairment from Teesside (S$48.5m net of tax), we estimate core net profit in 9M13 to be S$528.3m, accounting for about 71% of our full year estimate.
Utilities update by regions
Utilities saw a decrease of 7% in revenue to S$1.28b in 3Q13, mainly due to lower electricity sales in Singapore and lower High Sulphur Fuel Oil prices. According to management, spark spreads were down 19% YoY in 3Q13. China continued to register good revenue growth from S$35m in 2Q13 to S$45m in 3Q13, but on the UK side, there was an impairment of Teesside operations, mainly for power and steam assets. SCI is seeking to re-base existing contracts to recover costs, as well as to reflect current operating conditions. We understand that there should not be further provisions on this front in 4Q13.
Turns net cash with Salalah deconsolidation
With the listing of Sembcorp Salalah and SCI’s corresponding drop in its stake from 60% to 40%, the former will now be accounted for as an associate of the group. The deconsolidation has also resulted in SCI turning from a net debt position of S$468m as at Jun 2013 to a net cash position of S$494m in Sep 2013.
Long-term prospects remain bright
SCI’s share price has increased by about 10% since our last report on 5 Sep, vs the STI’s ~5.5% increase over the same period. Meanwhile, we roll forward our valuation to FY14F earnings for the utilities business, and tweak our SOTP-based valuation to account for Salalah’s listing on the Muscat stock exchange, resulting in an increase in our fair value estimate to S$6.67 (prev. S$6.48). Maintain BUY.
Sembcorp Industries (SCI) reported a 30.8% YoY rise in revenue to S$2.97b and a 40.4% increase in net profit to S$254.4m in 3Q13, such that 9M13 revenue (S$7.82b) and net profit (S$596.7m) accounted for 74% and 78% of our full year estimates, respectively. Stripping out one-off items such as gains from the IPO of Salalah (S$117.1m) and impairment from Teesside (S$48.5m net of tax), we estimate core net profit in 9M13 to be S$528.3m, accounting for about 71% of our full year estimate.
Utilities update by regions
Utilities saw a decrease of 7% in revenue to S$1.28b in 3Q13, mainly due to lower electricity sales in Singapore and lower High Sulphur Fuel Oil prices. According to management, spark spreads were down 19% YoY in 3Q13. China continued to register good revenue growth from S$35m in 2Q13 to S$45m in 3Q13, but on the UK side, there was an impairment of Teesside operations, mainly for power and steam assets. SCI is seeking to re-base existing contracts to recover costs, as well as to reflect current operating conditions. We understand that there should not be further provisions on this front in 4Q13.
Turns net cash with Salalah deconsolidation
With the listing of Sembcorp Salalah and SCI’s corresponding drop in its stake from 60% to 40%, the former will now be accounted for as an associate of the group. The deconsolidation has also resulted in SCI turning from a net debt position of S$468m as at Jun 2013 to a net cash position of S$494m in Sep 2013.
Long-term prospects remain bright
SCI’s share price has increased by about 10% since our last report on 5 Sep, vs the STI’s ~5.5% increase over the same period. Meanwhile, we roll forward our valuation to FY14F earnings for the utilities business, and tweak our SOTP-based valuation to account for Salalah’s listing on the Muscat stock exchange, resulting in an increase in our fair value estimate to S$6.67 (prev. S$6.48). Maintain BUY.
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