SEMBCORP INDUSTRIES LTD
U96.SI
Sembcorp Industries - Focus on overseas assets
- 1Q16 net profit of S$107m (US$79m) was in line at 21% of our FY16 forecast and 20% of consensus.
- Utilities profit was stable yoy, thanks to stronger China, Middle East and UK, but weaker qoq due to competitive spark spread in Singapore.
- Overseas assets account for c.60% of utilities profit.
- India may only start to perform from 3Q16 due to seasonality and shutdown.
- Maintain Add with an SOP target price of S$3.10. Catalysts could include stronger profits from overseas assets and divestments of non-core assets.
■ Water and solid waste contribute 73% of Singapore’s profit
- Singapore net profit of S$29.8m (-9% yoy, -37% qoq) was affected by lower spark spread.
- We estimate Sembcogen net loss to have widened qoq to S$5m (4Q15: -S$2m) as 1Q16 pool prices fell to c.S$46MW (4Q15:cS$60/MW) from full capacity expansion at Hyflux’s Tuaspring power plant.
- Water and solid waste were steady at S$22m net profit (73% of Singapore’s profit).
- Gas/steam net profit of c.S$13m was c.28% weaker qoq and yoy due to lower HSFO and oil prices, which affected some gas contract margins.
■ India seasonally weaker in 1Q
- India incurred net loss of S$1.3m (4Q15: -S$1.5m) with TPCIL at a small profit.
- PLF was more than 80% but only 500MW was backed by PPA (priced more than c.Rs3 /kWh) with Andhra Pradesh, with remaining power (c.500MW) sold in the Indian Energy Exchange at lower prices (c.Rs2.5/kWh).
- Coal India’s higher production for 2015-16 and seasonal lower demand caused the IEX price to dip in Jan-Feb but it rebounded since Mar.
- The 570MW PPA to Telangana started end-Mar 16, securing 86% of TPCIL’s net capacity. SGI achieved a small net loss from weaker wind load in 1Q.
■ TPCIL unit 2 shutdown may affect 2Q, India still profitable in FY16
- We think TPCIL could see a small loss in 2Q16.
- PLF dipped to 50% in Apr 16 as the second turbine faced technical teething issues, bringing forward the shutdown scheduled for 2H16, which should be completed by mid-May.
- No penalty will be imposed as Indian power plants are evaluated annually on its minimum output (80-90%).
- Management keeps its guidance of India being profitable. We expect India to deliver S$39m of profit in FY16.
■ China accounts for one-third of utilities; Middle East/UK steady
- China’s net profit of S$25.6m (+29% yoy, -4% qoq) accounted for 34% of utilities earnings. There was an overall improvement in Shanghai Caojing’s power and water assets.
- The Middle East provided steady net profit of S$12m (+43% yoy, +4% qoq) and UK/Americas with net profit of S$13.8m (+47% yoy, +50% qoq).
■ Maintain Add and target price of S$3.10
- Our FY16-18 EPS is tweaked by 0.4% to reflect our recent earnings upgrade for SMM, offset by lower profit in Utilities Singapore.
- The market is discounting Utilities, valuing it at 0.4x CY16 P/BV (vs. ROE of 7%). This is also below regional water and power peers’ average of 1.3x with similar returns.
- The successful commissioning of its second Indian power plant, SGP (previously known as NCCPP) in 4Q16 could also catalyse the stock.
LIM Siew Khee
CIMB Securities
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http://research.itradecimb.com/
2016-05-05
CIMB Securities
SGX Stock
Analyst Report
3.10
Same
3.10
