Sembcorp Industries (SCI) posted a 3.2% YoY rise in revenue to S$3.1b and a 22.7% YoY fall in net profit to S$196.6m in 3Q14, such that 9M14 net profit of S$298.6m accounted for 73% and 71% of ours and the street’s full year estimates, respectively. Spark spreads in Singapore continued to remain under pressure in the quarter and were lower by 3% QoQ and 33% YoY in 3Q14. Competition in the Singapore power market “continues to be intense” and is expected to affect the performance of the utilities business. However, overseas operations are expected to grow. Meanwhile, with the consolidation of TPCIL as well as higher borrowings from the marine segment, SCI’s balance sheet has become more leveraged. After taking into account SMM’s lower fair value since our last update, as well as SCI’s net debt position, our SOTP-based fair value estimate drops from S$5.64 to S$5.00. Maintain HOLD.
Results within expectations
Sembcorp Industries (SCI) posted a 3.2% YoY rise in revenue to S$3.1b and a 22.7% YoY fall in net profit to S$196.6m in 3Q14, such that 9M14 net profit of S$298.6m accounted for 73% and 71% of ours and the street’s full year estimates, respectively. Net profit from the utilities business fell 34% YoY to S$114.2m, while marine saw a 2% rise to S$80.0m in the quarter. Meanwhile, urban development saw a 114% rise in net profit to S$4.9m. The fall in net profit for utilities for 3Q14 was mainly because 3Q13 saw gains from the IPO of Salalah, offset by an impairment made for operations in the UK; excluding these one-off items, SCI achieved a 10% net profit growth in the utilities segment in 3Q14.
Spark spreads remain under pressure
Spark spreads in Singapore continued to remain under pressure in the quarter and were lower by 3% QoQ and 33% YoY in 3Q14. Competition in the Singapore power market “continues to be intense” and is expected to affect the performance of the utilities business. However, overseas operations, which accounted for about half of utilities net profit in 9M14, are expected to grow. As for the urban development business, it is expected to deliver a comparable performance in 2014, underpinned by land sales in China and Vietnam.
Maintain HOLD
With the consolidation of TPCIL (SCI’s first power plant investment in India) which became a subsidiary in Jul 2014, as well as higher borrowings from the marine segment, SCI’s balance sheet has become more leveraged; at 3Q14 the group was in a net debt position of S$2.3b vs. just S$49m in 2Q14. We do note, however, that about 43% of its total debt is long-dated and repayable after five years. We also expect more cash inflows as more plants come on-stream. After taking into account SMM’s lower fair value since our last update, as well as SCI’s net debt position, our SOTP-based fair value estimate drops from S$5.64 to S$5.00. Maintain HOLD.
Sembcorp Industries (SCI) posted a 3.2% YoY rise in revenue to S$3.1b and a 22.7% YoY fall in net profit to S$196.6m in 3Q14, such that 9M14 net profit of S$298.6m accounted for 73% and 71% of ours and the street’s full year estimates, respectively. Net profit from the utilities business fell 34% YoY to S$114.2m, while marine saw a 2% rise to S$80.0m in the quarter. Meanwhile, urban development saw a 114% rise in net profit to S$4.9m. The fall in net profit for utilities for 3Q14 was mainly because 3Q13 saw gains from the IPO of Salalah, offset by an impairment made for operations in the UK; excluding these one-off items, SCI achieved a 10% net profit growth in the utilities segment in 3Q14.
Spark spreads remain under pressure
Spark spreads in Singapore continued to remain under pressure in the quarter and were lower by 3% QoQ and 33% YoY in 3Q14. Competition in the Singapore power market “continues to be intense” and is expected to affect the performance of the utilities business. However, overseas operations, which accounted for about half of utilities net profit in 9M14, are expected to grow. As for the urban development business, it is expected to deliver a comparable performance in 2014, underpinned by land sales in China and Vietnam.
Maintain HOLD
With the consolidation of TPCIL (SCI’s first power plant investment in India) which became a subsidiary in Jul 2014, as well as higher borrowings from the marine segment, SCI’s balance sheet has become more leveraged; at 3Q14 the group was in a net debt position of S$2.3b vs. just S$49m in 2Q14. We do note, however, that about 43% of its total debt is long-dated and repayable after five years. We also expect more cash inflows as more plants come on-stream. After taking into account SMM’s lower fair value since our last update, as well as SCI’s net debt position, our SOTP-based fair value estimate drops from S$5.64 to S$5.00. Maintain HOLD.
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