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Reaching c.40% of 10GW target

  • SCI to acquire 98% interest in a 658MW portfolio of wind and solar assets in China worth $700m. We estimate EBITDA contribution of S$60m-70m p.a.
  • This brings total gross renewable energy capacity to 4.2 GW (wind 2.84GW, solar 1.20GW, battery storage 0.12GW), including WIP assets.
  • Acquisition to be completed in 1H22F; management said favourable valuation and ROE for SCI (albeit no numbers disclosed). Add with TP of S$2.51.
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SCI to acquire 658MW of wind and solar assets in China

● SCI’s subsidiary Sembcorp Energy (Shanghai) signed an agreement with CGN Capital Partners Infrastructure Fund III to acquire a 98% interest in 417.5MW wind and 240MW solar assets in China. The remaining 2% interest is held by the management team which has managed these assets since their commercial operation date (COD).
● Subject to adjustments at completion, c.S$700m will be funded through internal cash resources and the rest through external borrowings. Based on 60% debt funding, we estimate SCI’s net gearing to inch up to c. 1.8x in FY22F (from current 1.7x).
● If approved by regulators, the acquisition is expected to be completed in 1H22F.

Strategic platform-type acquisition favourable to SCI

● In China, acquisitions are broadly split into: (1) asset-type acquisitions; and (2) platform type acquisitions, involving both technologies and platform capabilities, and are hence usually priced at a premium. We understand that valuation for this 658MW platform-type acquisition was benchmarked against asset-type valuations. Management guided that the transaction is favourable, although no figures were disclosed. China renewable
peers trade at 8-9x EV/EBTIDA (Fig 3).
● Furthermore, asset quality is high with the earliest COD in 2016 and PLFs at 95-100%. All assets in the portfolio have commenced energy generation.
● These assets are situated in net energy-importing regions, and hence pose little risk of curtailment. According to SCI, ROE is within management expectations.

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Earnings accretive; Reiterate Add with TP based on 15x CY22F P/E

● In 1H21, China renewable assets’ (49% stake in Guohua Energy) EBITDA w as S$21m. It has 725MW of wind capacity. Based on its capacity, w e estimate latest portfolio of assets to add about S$60m-70m in FY23F or 6% of group adjusted EBITDA.
● Maintain Add at TP of S$2.51, based on 15x CY22F P/E (Asian peers’ average). Key potential re-rating catalysts: decarbonisation of conventional energy assets. Downside risks: unfavourable regulatory changes.