■ We visited SCI’s 60MWp floating solar farm today, the largest in Singapore. This is part of its 390MWp of solar energy projects in Singapore (incl. WIP).
■ We like SCI’s execution on greening its assets so far. Decarbonisation of its conventional energy segment is a key catalyst.
■ SCI is a renewable energy proxy in Singapore, trading at an undemanding c.8x FY22F EV/EBITDA vs. recent Sunseap acquisition at 31x.
■ SCI is also among our top 3 mid-cap ESG picks. Reiterate Add and TP of S$2.51 (still based on 15x CY22F P/E, benchmarking Asian peers’ average).
Largest floating solar farm in Singapore
● We visited SCI’s Sembcorp Tengeh Floating Solar Farm today. Designed, built, owned, and operated by SCI, the 60MWp (or 230mw/hour/day) solar farm encompasses 122,000 solar panels spanning 45 hectares (the size of c.45 football fields). It was officially opened on 14 Jul this year in partnership with National Water Agency Public Utilities Board (PUB). Electricity generated from the floating solar farm will power Singapore’s five local water treatment plants, offsetting c.7% of PUB’s annual energy needs.
● The solar farm cost c.S$50m to build (less than S$1m/MWp) and is contracted mainly to the Singapore PUB for 25 years. It took c.8 months for SCI to build the solar farm. The floating solar farm levelised cost of energy (LCOE), a measure of average net present cost of electricity generation for a genco is 10% cheaper than a conventional energy plant. We understand that tariff structure is based on a pre-agreed tariff for certain hours (e.g. 9am to 5pm) and retail pricing for others (other than 9am to 5pm).
● This is SCI’s only floating solar farm to date. SCI’s other ventures in solar are rooftop solar and utility-scale solar in Singapore, India and Vietnam. The other commercial floating solar farm (5MWp) in Singapore is operated by competitor, Sunseap. PUB conduct feasibility studies in 2022 for two other large-scale floating solar photovoltaic (PV) systems at Lower Seletar (100MWp) and Pandan (44MWp) reservoirs.
● In Singapore, SCI has c.390MWp of solar energy including projects under development. Its solar energy business model are largely categorised into three types 1) 1-1 dedicated purpose-built rooftop for customers with typical capacity of 1-3MWp, 2) HDB rooftop of which c.80% of capacity is pumped into the national grid with CFDs with big corporates for the green electrons or renewable energy certificates (REC), and 3) pure REC customers or via adoption of projects, e.g. Google and Facebook.
Step-shift growth in renewables
● Renewables contributed S$146m/S$133m to SCI’s revenue/adjusted EBITDA in 1H21, mainly dominated by wind power from India Green Infra Energy. We believe that solar operations contributed less than 10% of its renewables earnings in 1H21.
● SCI allocated c.S$4.4bn in renewables projects, or 80% of its S$5.5bn 5-year cumulative growth investment target. In Oct 21, SCI entered a joint agreement with PT PLN Batam and Suryagen to develop 1GWp of solar power in Indonesia (investment amount unknown for now). Last week, it announced the acquisition of 658MW wind and solar portfolio in China worth S$700m.
● We think SCI’s valuation is undemanding vs. recent Sunseap acquisition by EDP Renewables at EV of €879m (S$1.35bn) implied a FY20 EV/EBITDA of 31x. Sunseap’s has 5.5GW of renewable projects at different stages of development – 540MW operating and under construction solar projects, 127MW of secured capacity and a 4.8GW pipeline in different stages, including a 2.2GW solar project in Riau Islands, Indonesia.
● SCI has an estimated 4.2GW of renewable energy including operating 2.4GW wind, 215MW solar and the remaining under development/to be acquired.
● We like SCI’s execution on greening its assets so far. Decarbonisation of its conventional energy segment is a re-rating catalyst. Downside risks: unfavourable regulatory changes and sizeable impairment.