We expect the focus of SCI’s upcoming results to be on:
- Extent of decline in power price spreads in Singapore (-19% YoY in 3Q13),
- Any further impairments on UK Teesside operations, and
- Prospects for future pipeline projects.
Power spread contraction an overhang. We believe that power spread contraction in Singapore due to intensifying competition would be a short-term overhang on stock price, given that SCI derives ~80% of Utilities segment revenue and ~60% of Utilities segment net profit from Singapore.
Long-term prospects hinge on profitability of pipeline of Utilities segment projects that are scheduled to come through progressively over 2014-2016. These projects have the potential to strengthen long-term recurring income. However, we think the market may place less emphasis on such potential until there is better visibility on earnings contributions from the projects.
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