- BUY Entry 2.93 – Target – 3.17 Stop Loss – 2.75
- Headquartered in Singapore, Sembcorp Industries (SCI) leverages its sector expertise and global track record to deliver solutions that support energy transition and sustainable development. By focusing on growing its Renewables and Integrated Urban Solutions businesses, SCI aims to transform its portfolio towards a greener future and be a leading provider of sustainable solutions. SCI has a balanced energy portfolio of 16.5GW, with 7.0GW of gross renewable energy capacity comprising solar, wind and energy storage globally. SCI also has a track record of transforming raw land into sustainable urban developments, with a project portfolio spanning over 13,000 hectares across Asia.
- Media reports on electricity wholesale price spike. On 18 July, media reported that Singapore’s wholesale electricity price surged for a second time during the week, a sign of further volatility in the market amidst a global power crunch. The cost of 1 megawatt-hour jumped to more than S$4,200, close to the pricing cap of S$4,500. The high price was also sticky for the longest period this year, with the pricing staying for 3 hours. The latest prolonged surge implied a tightness in the market that could not easily be mitigated. High prices would also incentivise power generation companies such as SCI to sell more electricity. Prices staying high thus suggests a fundamental lack of sufficient capacity.
- Share price erased gains despite positive profit guidance. SCI’s share price has essentially given up all gains that were made during its positive profit guidance. Recall that SCI announced that it was looking at stronger-than-expected 1H22 performance driven by its conventional energy segment as electricity prices in Singapore and India remained high. Recall that SCI’s FY21 performance was already substantially stronger on a YoY basis. FY21 turnover/adjusted net profit jumped 43%/57% YoY to S$7.8bn/S$472m mainly on contributions from conventional energy again. Notably, sustainable solutions also saw turnover improve 17% YoY.
- Forecasts upbeat with room for further rerating. The Street currently has 9/2/0 BUY/HOLD/SELL ratings and an average TP of S$3.45. Based on consensus estimates, FY22F gross revenue/net profit should pick up by 9.7%/6.6 YoY to S$8.55bn/S$503m respectively. In line with this, the street is expecting FY22F DPU to jump 28% YoY to 6.4¢ (FY21: 5.0¢) or at a 2.2% yield. At current prices, SCI would trade at 11.1 forward P/E roughly at the YTD average of 11x, although this might change if the street starts a round of upgrades in the event of stronger-than-expected SCI results and more bullish guidance. SCI is due to announce 1H22 results on 5 August before trading commences.