2023: Strong Results With More Capacity Growth In Renewables To Come
SCI reported strong 2023 results with net profit before exceptional items up 45% yoy to over S$1b — a historical high for the company. Equally impressive was its free cash flow of nearly S$2b which implies a P/FCF of 5.2x. Both conventional energy and renewables saw impressive profit growth in 2023 with capacity additions for the latter segment likely to be a key share price driver in the next 12-18 months, in our view. Maintain BUY. Target price: S$7.49.
RESULTS
• Better-than-expected results and a historical high. Sembcorp Industries (SCI) reported a strong 45% yoy increase in net profit (before exceptional items) to S$1.02b, the highest in its history as a listed company. Free cash flow of nearly S$2b generated during 2023 was also a highlight, up 14% yoy. As a result, the company reported an ROE before exceptional items of 23.8% for 2023, and declared a final dividend of S$0.08, bringing total dividend for 2023 to S$0.13, representing a payout ratio of 23%.
• Conventional energy remains a strong contributor. After witnessing a 30% yoy increase in net profit for this segment in 2023, SCI remains bullish, guiding for this business to “remain robust” in 2024 underpinned by its significantly contracted position. Note that on a group-wide basis, 62% of its gas portfolio is contracted while in Singapore this is a significant 74% (with average tenure of 12 years) which generates cashflow certainty over the long term. This however will be offset slightly by a 60-day planned shutdown of its Singapore cogeneration assets to ensure its continued efficiency and high reliability.
