CGS-CIMB on Wednesday called Sembcorp Industries (SCI) a " classic stock" for environmental, social and governance (ESG) investment in the longer term given its proper communication of its renewable energy plans.

 

This came after SCI' s management stated on Tuesday that it is keen to shift the current renewable/thermal mix of 40/60 profit contribution in the medium term, details of which will be revealed at an " investor day" slated for May 2021.

 

" We see this as a key catalyst as SCI' s position in the renewable energy and urban solutions market is unmatched in the region," CGS-CIMB said in a research note.

 

CGS-CIMB has reiterated " add" on the stock, with a slightly higher target price of S$1.97 from S$1.95 previously. SCI also trades at 0.8 times its P/BV (price-to-book value), cheap when stacked against regional power or utility plays - which are trading at around 1.8 times, CGS-CIMB noted.

 

Meanwhile, UOB Kay Hian (UOBKH) maintained its " buy" call on SCI, with a lowered target price of S$2 from S$2.02 previously. It raised its target price-to-book multiple to one times from 0.9 times previously and pegged this to SCI' s 2021 book value per share of S$2.

 

SCI' s results were in line with UOBKH' s expectations. SCI had recommended a dividend of four Singapore cents per share - better-than-expected for the research team which had projected 2.5 cents per share.

 

Moving forward, UOBKH projects a 30 per cent payout ratio for SCI, implying a 3 per cent yield for 2021. It has upgraded its earnings forecasts for the conglomerate' s fiscal 2021 and 2022 by 14 per cent and 4 per cent respectively.

 

" In the past two years, SCI has built up its renewables portfolio, some of which will come to fruition in the near term," UOBKH said.

 

In light of better-than-expected performance from SCI' s energy business, the UOBKH research team has raised its net profit margin expectations to 5.5 per cent from 5 per cent for the segment for FY2021, and 6 per cent from 5.7 per cent for FY2022. UOBKH also expects overall year-on-year demand recovery for both energy and utilities.

 

The earnings upgrade was however tempered by the loss of income from divested assets in Panama and Chile, UOBKH said.

 

DBS Group Research has reinstated its coverage on SCI with " buy" , with a raised target price of S$1.85 from S$1.70 previously. It noted that SCI is nearing a perfect turnaround and is well-positioned to leverage the global focus on renewable energy.

The conglomerate, which posts FY20 net loss of S$997m, will reveal details of its renewables growth path in May

 

SEMBCORP Industries is stepping up the pace of growing the renewables business now that it no longer needs to conserve cash to prop up its sickly marine unit since its last September split with Sembcorp Marine.

 

" For awhile, we were very cautious and reluctant to invest significantly - even though we have identified sustainability and renewables as a direction - (just) so we could conserve cash in case we need to support marine. With the demerger, that condition is no longer there," said Sembcorp group president and chief executive Wong Kim Yin.

 

The firm, which counts urban development and energy as core businesses, is set to reveal details of its strategic pivot towards renewable energy over the mid to long-term during an " investor day" scheduled sometime in May.

 

" We are so much more focused in terms of our priorities and capital management. I' m dying to tell you about it but we' ll do that in May. We will share how we intend to shift and transform the portfolio from brown to green," said Mr Wong at a media and analyst briefing on the company' s FY20 results on Tuesday.

 

In January, Sembcorp Energy India snagged a new 400 megawatt solar power project in Rajasthan, India, from Solar Energy Corporation of India (SECI) in a " closely contested auction" . Sembcorp' s Indian unit is the first independent power producer to have completed the commissioning of 800MW of wind projects awarded from three earlier SECI bids.

 

" We did quite a few (SECI projects) years ago and then, over the last two years, we were out of the race. We did not feel confident that we had the resources to fund our projects and so we didn' t bid. It' s only until the demerger late last year that we did it and won (the Rajasthan project)," Mr Wong continued.

 

While things appear to be looking up for Sembcorp, that' s not quite the case for its former subsidiary SembMarine which is still reeling from the impact of low oil prices brought about by the pandemic. The giant rigbuilder on Tuesday announced a more than four-fold jump in FY2020' s net loss to more than half a billion dollars from a year ago and warned that the bleeding could continue.

 

For Sembcorp, the most significant impact of having spun off its marine unit can be gleaned from its balance sheet. Borrowings are down to S$7.7 billion as at end-2020 from S$10.8 billion in the prior year. Sembcorp' s outgoing chief financial officer Graham Cockroft reiterated: " It' s the focus of not having to keep reserve capacity in the balance sheet just in case oil prices don' t recover and that' s made a huge difference for the group."

 

Mr Cockroft will be leaving the company end-month to relocate to New Zealand. He will be succeeded by Eugene Cheng, currently chief corporate officer of SATS, who will join the company on March 8.

 

For the second half ended December 2020, the conglomerate slipped into the red by S$866 million from a profit of S$56 million a year ago, largely owing to losses from the discontinued marine business and exceptional items. Loss from the discontinued marine business stemmed chiefly from a non-cash, non-recurring fair value loss of S$970 million resulting from the completion of the distribution in specie of ordinary shares of SembMarine last year under the demerger plan.

 

Excluding exceptional items and the discontinued marine business, the group posted a profit of S$151 million, down 40 per cent from the corresponding period in 2019.

 

Revenue fell 17 per cent to S$2.8 billion for the six-month period, led mainly by the energy segment. It posted a loss per share of 48.52 Singapore cents for the six months versus an earnings per share (EPS) of 2.13 cents previously. On a continuing operations basis, EPS came in at 11.09 Singapore cents compared with 5.04 cents in the previous corresponding period.

 

A final cash dividend of four Singapore cents per share has been recommended, up from three cents a year earlier. The final cash dividend is subject to shareholders' approval at its annual general meeting on April 22, with books closure on April 29. If approved, the dividend will be paid on May 6.

 

The group' s total dividend for the year will amount to four Singapore cents per share, down from five cents for 2019.

 

For the full year ended Dec 31, 2020, the group recorded a net loss of S$997 million, from a net profit of S$247 million on the back of a 19 per cent fall in revenue to S$5.45 billion.

 

On the outlook of Sembcorp' s operations in Myanmar, Mr Wong stressed that the firm will continue to be invested in the South-east Asian economy as it regards its power business there as a " very important infrastructure asset" . This is despite Myanmar being rocked by a military coup and the ensuing protests.

 

" We are obviously monitoring the situation very closely. Our first priority is the safety of our people. So far, they are safe. The other thing that' s important is to make sure that our business (there) continues to hum," he added.

 

He was responding to questions on whether the conglomerate was re-evaluating its investments in Myanmar amid the escalating tension in the wake of the military coup

 

Sembcorp has a workforce of 90 in Myanmar with 70 in Myingyan, a district in Mandalay, and the remaining in Yangon. Through its subsidiary, Sembcorp Myingyan Power Company, the group operates a 225-megawatt gas-fired power plant in Mandalay which commenced operation three years ago.

 

" This plant is one of the lowest cost power that is available to the people of Myanmar. So, for us to continue operating this plant is important and so far, we have been able to keep it operating," he continued.

 

Sembcorp also has an industrial park project in Myanmar, which was announced in August last year, and for now, has no " actual activities" taking place there. On when it expects to begin work on the project, Mr Wong replied that it was too early to say and it would have to take the cue from its customers at the industrial park.