- 1Q14 PATMI of SGD184.8m (+4.5% YoY, -17.4% QoQ) disappointed due to Sembcorp Marine’s weaker performance.
- Utilities segment PATMI of SGD91.6m (+2.5% YoY) was in line, with strong contribution from China (SGD16.7m, +33% YoY).
- Maintain HOLD with lower SOTP-based TP of SGD5.31.
Sembcorp Industries (SCI) reported lower-than-expected results for 1Q14, with PATMI of SGD184.8m (+4.5% YoY, -17.4% QoQ) making up 21% and 22% of our initial and consensus full-year forecasts. This came on the heels of Sembcorp Marine’s (SMM) disappointing performance. The utilities segment, however, measured up to expectations, posting PATMI of SGD91.6m (+2.5% YoY, +20.2% QoQ), which made up 23% of our initial full-year forecast. This was supported by a 33% YoY increase in contribution from China operations despite stagnant growth in Singapore operations.
What’s Our View
By 2016 SCI’s utilities development pipeline would see its gross power capacity increase by 76% to 7,300MW, while water capacity is expected to rise by 21% to 8.6m m3/day. These additions are critical in driving future growth as power price pressure in Singapore mounts. Spark spread fell by 23% QoQ, which would cap the growth in its domestic power operations despite new capacity addition.
Urban deve
lopment PATMI surged 192% YoY in 1Q14 to SGD19.5m due to strong land sales in Nanjing Eco Hi-tech Island project in China. The segment is expected to deliver better performance this year in anticipation of land sales in China and Vietnam.
We lower our FY14E/15E/16E PATMI by 7%/7%/11% to factor in our earnings cuts for SMM. Our SOTP-based TP thus falls to SGD5.31 (from SGD5.51). Maintain HOLD.
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