Friday, 8 August 2014

Sembcorp Industries

Kim Eng on 7 Aug 2014

  • 2Q14 PATMI met expectations. Interim DPS of 5.0 SGD cts.
  • Utilities suppressed by low spark spread in domestic market. Overseas contributions grew.
  • Maintain HOLD in view of near-term domestic power price pressure. SOTP-based TP trimmed from SGD5.11 to SGD5.03 after updating components.
Results in line
2Q14 PATMI of SGD179.0m (+8.3% YoY, -3.1% QoQ) lifted 1H14 PATMI by 6% YoY to SGD363.9m. This formed about 45% of our FY14E and consensus forecasts. We expect a stronger 2H with maiden contributions from its new Banyan cogen plant (started in July) and the recognition of more rig-building contracts by Marine. SCI declared an interim dividend for the first time, of 5.0 SGD cts. We keep our FY14E DPS of 15.0 SGD cts.
Focusing on overseas pipeline
Domestic power operations remained suppressed by low spark spreads, which fell 30% YoY (1Q14: -28% YoY), due to intense competition. Overseas operations mitigated the weakness, accounting for 48% of Utilities net profit in 1H14, up from 41% in 1H13. While management believes that spark spreads have stabilised, it said there could be further price pressure from 2015 as the Vesting Contract Level (used to mitigate the pricing power of gencos) could fall from 40% to 16% after the Energy Market Authority’s review.
SCI intends to focus on its overseas projects to offset the domestic market pressure. Over 3,000MW of new power capacity and 1.7m m3/day of new water capacity should come onstream in 2014-16.
Our forecasts are largely intact. TP trimmed to SGD5.03 from SGD5.11 as we update SOTP components. Maintain HOLD.

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