<Results Analysis> Good Results, Better Outlook
- FY21 core profit surged 57% y-o-y to S$472m with strong showings in Singapore and India
- Renewable growth remains key re-rating catalyst
- Declared final dividend of 3 Scts, bringing full year payout to 5 Scts or 2.3% yield
- Reiterate BUY; TP adjusted to S$3.20 after earnings revisions
Strong showings in 2021. Sembcorp Industries reported a promising set of FY21 results. Excluding exceptional losses totaled S$193m (largely due to impairment for Chonqing power plant of S$212m in 1H21), core earnings surged 57% y-o-y to S$472m, implying core ROE of 12.9% (after EI: 7.9%).
Driven by strong earnings for conventional energy business in Singapore, India and UK on the back of higher demand and margins. In Singapore, spark spread expanded alongside q-o-q, tripling in Average monthly uniform Singapore energy price (USEP) in 4Q. Similarly in India, demand and tariff were also very firm. UK flex battery business also benefited from the high volatility of renewable supply.
2H earnings could have been higher than 1H. Recall that SCI’s core net profit came in way above expectation at S$252m in 1H with strong operational improvement in Singapore and India. Management had guided a sequentially lower 2H on high base in anticipation of tariff and demand moderation as well as loss of income from plant maintenance in India.
Singapore and India power markets turned out to be better than expected, as tariff skyrocketed in 4Q unexpectedly. SCI’s 2H core profit of S$220m could have been higher than 1H, if not for provisions and one-off cost (such as provision for transformation fund, impairment for remediation work for a UK legacy site etc) totaling over S$50m based on our estimate, as well as loss of income of plant maintenance in India (29-45 days).
India – plant 2 turning profitable and no requirement for impairment. India’s recent secure of long-term PPAs for plant 2 was a significant milestone. It not only stabilises cash flow of the plant but should turn around earnings to contribute positively going forward. In addition, based on current assessment, there is no requirement for further impairment for India plants given the steadier cash flow.
Sustainable solutions account for ~35% of core earnings in FY21. Of which, Renewable contributed S$56m (or S$71m excluding one-off costs – development cost arising from China acquisitions and deferred tax expense charge in UK) while integrated Urban Solutions S$155m. We expect renewable contribution to accelerate next few years as the new capacity progressively comes online.
SCI declared final dividend of 3 sct, bringing full year payout to 5sct, translating dividend yield of ~2.3%. We project similar 5-6 Scts dividend next 2-years.
Earnings revisions. We are raising our FY22/23 net profit by 14/22% after factoring in earnings turnaround of India Plant 2 and contribution of recent acquisitions of renewable assets in China. Revised net profit this year implies ~10% y-o-y decline as we conservatively assume normalization of exceptional profits in Singapore and UK, as well as unforeseen cost or provisions.
Segmental breakdown:
| FY Dec (m) | 1H20 | 2H20 | 1H21 | 2H21 | FY20 | FY21 | YoY Chg | |
| Profit Breakdown | ||||||||
| Headline Net Profit | ||||||||
| Renewables | 33 | 13 | 24 | 32 | 46 | 56 | 22% | |
| Integrated Urban Solutions | 66 | 74 | 69 | 92 | 140 | 161 | 15% | |
| Conventional Energy | (36) | 149 | (27) | 201 | 113 | 174 | 54% | |
| Other Business & Corporate | (104) | (38) | (20) | (92) | (142) | (112) | -21% | |
| Total | (41) | 198 | 46 | 233 | 157 | 279 | 78% | |
| Net Profit before EI (S$m) | ||||||||
| Renewables | 33 | 13 | 24 | 32 | 46 | 56 | 22% | |
| Integrated Urban Solutions | 64 | 49 | 63 | 92 | 113 | 155 | 37% | |
| Conventional Energy | 127 | 118 | 185 | 188 | 245 | 373 | 52% | |
| Other Business & Corporate | (75) | (29) | (20) | (92) | (104) | (112) | 8% | |
| Total | 149 | 151 | 252 | 220 | 300 | 472 | 57% |
Source of all data: Company, DBS Bank