Sembcorp Industries (SCI) posted a 11.0% YoY drop in revenue to S$2.3b and a 23.1% drop in net profit to S$142.2m in 1Q15, slightly below our expectations. 2015 is expected to be challenging for the Singapore energy business, but the overseas business is expected to continue to deliver a steady performance. On the marine side, new orders remain minimal. After our rating upgrade on 18 Feb, SCI’s stock appreciated by ~16% to close at S$4.86 on 21 Apr, but has since retreated to S$4.49 vs 17 Feb’s close of S$4.20. We roll forward our valuations, and with a lower fair value estimate for Sembcorp Marine in our SOTP valuation, we lower our fair value estimate from S$4.84 to S$4.72. Downgrade to HOLD, with a potential upside of 8.6% (this includes a dividend yield of ~3.6%).
1Q15 results slightly below
Sembcorp Industries (SCI) posted a 11.0% YoY drop in revenue to S$2.3b and a 23.1% drop in net profit to S$142.2m in 1Q15, accounting for 22% and 18% of our full year estimates, respectively. This was slightly below our expectations due to higher depreciation from the Banyan cogen plant in the power segment, as well as lower spark spreads. Though we are expecting 2H15 to be a stronger period for the group with more significant earnings contributions from the start-up of TPCIL in India and some cost reductions from group-wide initiatives, we pare our FY15/16 estimates by 5/7%, due to lower forecasts for the marine business, as well as lower estimates for the Singapore utilities business.
Overseas utilities the bright spot for now
2015 is expected to be challenging for the Singapore energy business with continued intense competition in the power market as well as low oil prices. The overseas business, however, is expected to continue to deliver a steady performance. On the marine side, new orders remain minimal and we have already lowered our fair value estimate for Sembcorp Marine (SMM) from S$2.95 to S$2.77. Uncertainties in Brazil’s oil and gas industry remain and SMM is exploring all options including slowing down the construction of the drillships. Meanwhile, the urban development segment is expected to deliver a performance comparable to 2014, though quarterly earnings are likely to be lumpy due to land sales recognitions.
Downgrade to HOLD
After our rating upgrade on 18 Feb, SCI’s stock appreciated by ~16% to close at S$4.86 on 21 Apr, but has since retreated to S$4.49 vs 17 Feb’s close of S$4.20. We roll forward our valuations, and with a lower fair value estimate for Sembcorp Marine in our SOTP valuation, we lower our fair value estimate from S$4.84 to S$4.72. At the current price level, we downgrade our rating from Buy to HOLD, with a potential upside of 8.6% (this includes a dividend yield of ~3.6%).
Overseas utilities the bright spot for now
2015 is expected to be challenging for the Singapore energy business with continued intense competition in the power market as well as low oil prices. The overseas business, however, is expected to continue to deliver a steady performance. On the marine side, new orders remain minimal and we have already lowered our fair value estimate for Sembcorp Marine (SMM) from S$2.95 to S$2.77. Uncertainties in Brazil’s oil and gas industry remain and SMM is exploring all options including slowing down the construction of the drillships. Meanwhile, the urban development segment is expected to deliver a performance comparable to 2014, though quarterly earnings are likely to be lumpy due to land sales recognitions.
Downgrade to HOLD
After our rating upgrade on 18 Feb, SCI’s stock appreciated by ~16% to close at S$4.86 on 21 Apr, but has since retreated to S$4.49 vs 17 Feb’s close of S$4.20. We roll forward our valuations, and with a lower fair value estimate for Sembcorp Marine in our SOTP valuation, we lower our fair value estimate from S$4.84 to S$4.72. At the current price level, we downgrade our rating from Buy to HOLD, with a potential upside of 8.6% (this includes a dividend yield of ~3.6%).
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