PC Lee

 

SINGAPORE (Nov 23): OCBC is maintaining its &ldquo buy&rdquo call on Sembcorp Industries, the developer, owner and operator of energy and water assets, with a fair value of $3.07, given the group is well-positioned to seize business opportunities with its strong track record.

In a Wednesday report, lead analyst Low Pei Han likes Sembcorp for its strong track record in generating and supplying power, steam and natural gas, and providing total water and wastewater solutions for industries. The group is also known for its strong operational, management and technical capabilities.

&ldquo Sembcorp has grown its operations to 14 countries and looks set to cement its presence in Asia. Though its marine segment is facing headwinds, the longer term outlook for the utilities segment remains positive,&rdquo says Low.

In the near term, Sembcorp is expected to start up more power assets. In 4Q16, unit 3 of its SGPL plant in India is expected to start is commercial operations while unit 4 is expected to be in early 2017. Meanwhile, the plant is working to secure long-term PPAs to add to the the one-year PPAs it has on hand. In China, construction on the 1,320MW Chongqing power plant as gone ahead of schedule, and the first unit is expected to start commercial operations in 4Q16.

Low admits while the marine segment continues to be a risk for the group, the long-term growth prospects of the utilities segment which has exposure to developing markets look good.

&ldquo At current levels, the utilities stub is trading at about 0.7x book, which we feel is unjustified for a division that has in the past five years (and also likely in the future) netted ROEs of between 14-22%,&rsquo says Low.

This is especially so considering the less cyclical nature of the utilities industry, its growing overseas segment and Sembcorp&rsquo s proven ability to develop and execute large-scale greenfield projects, adds the analyst.

Shares of Sembcorp closed 1 cent higher to $2.70.