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Latest Forum Topics / Sembcorp Ind    Last:6.13    -0.08  Post Reply
SembCorp Industries
behonest
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23-Feb-2024 16:03     
 
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Key Insights



  • Sembcorp Industries' estimated fair value is S$5.07 based on 2 Stage Free Cash Flow to Equity


  • Current share price of S$5.81 suggests Sembcorp Industries is potentially trading close to its fair value


  • Our fair value estimate is 25% lower than  Sembcorp Industries' analyst price target of S$6.78


Today we' ll do a simple run through of a valuation method used to estimate the attractiveness of Sembcorp Industries Ltd (SGX:U96) as an investment opportunity by projecting its future cash flows and then discounting them to today' s value. Our analysis will employ the Discounted Cash Flow (DCF) model. Don' t get put off by the jargon, the math behind it is actually quite straightforward.

Remember though, that there are many ways to estimate a company' s value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the  Simply Wall St analysis model.

View our latest analysis for Sembcorp Industries

Crunching The Numbers

 


We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period whic dcf

h levels off heading towards the terminal value, captured in the second ' steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren' t available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today' s dollars:

10-year free cash flow (FCF) forecast

 

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033


Levered FCF (SGD, Millions)

S$2.00b

S$342.8m

S$324.3m

S$314.0m

S$309.0m

S$307.5m

S$308.3m

S$310.7m

S$314.4m

S$318.9m


Growth Rate Estimate Source

Analyst x1

Analyst x2

Est @ -5.40%

Est @ -3.16%

Est @ -1.60%

Est @ -0.50%

Est @ 0.26%

Est @ 0.80%

Est @ 1.17%

Est @ 1.44%


Present Value (SGD, Millions) Discounted @ 5.7%

S$1.9k

S$307

S$274

S$251

S$234

S$220

S$209

S$199

S$190

S$183


(" Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF)  = S$4.0b

The second stage is also known as Terminal Value, this is the business' s cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.1%. We discount the terminal cash flows to today' s value at a cost of equity of 5.7%.

Terminal Value (TV)= FCF2033  × (1 + g) ÷ (r &ndash g) = S$319m× (1 + 2.1%) ÷ (5.7%&ndash 2.1%) = S$8.8b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= S$8.8b÷ ( 1 + 5.7%)10= S$5.1b

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is S$9.0b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of S$5.8, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
 
dcf

Important Assumptions



We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company' s future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company' s future capital requirements, so it does not give a full picture of a company' s potential performance. Given that we are looking at Sembcorp Industries as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we' ve used 5.7%, which is based on a levered beta of 0.800. Beta is a measure of a stock' s volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

SWOT Analysis for Sembcorp Industries



Strength


  • Earnings growth over the past year exceeded the industry.


  • Debt is well covered by earnings and cashflows.


  • Dividends are covered by earnings and cash flows.


Weakness


  • Dividend is low compared to the top 25% of dividend payers in the Integrated Utilities market.


  • Expensive based on P/E ratio and estimated fair value.


Opportunity


  • U96' s financial characteristics indicate limited near-term opportunities for shareholders.


Threat


  • Annual earnings are forecast to decline for the next 2 years.

Next Steps:



Although the valuation of a company is important, it shouldn' t be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For Sembcorp Industries, we' ve compiled three relevant aspects you should further examine:


  1. Risks: To that end, you should learn about the  2 warning signs  we' ve spotted with Sembcorp Industries (including 1 which is a bit unpleasant)  .


  2. Future Earnings: How does U96' s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our  free analyst growth expectation chart.


  3. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore  our interactive list of stocks with solid business fundamentals  to see if there are other companies you may not have considered!


PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SGX every day. If you want to find the calculation for other stocks just  search here.
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Louistan
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23-Feb-2024 15:54     
 
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 Alert Admin 		The consesnus TP is close around $6.85. JPM' s TP is th lowest.

SCI' s fair value should be very close to Keppel' s, $1 + lesser at the very most for time being

stockpicker      ( Date: 23-Feb-2024 15:49) Posted:

Take care.  Trust only when they can show a report.  Most Houses use DCF method to work out the valuation.  The value can change a lot depending on how they input of cash flow.  For example,  the top report gave a fair value of $5.07 but the bottom report gav e $ 5.30.  They are other who said the fair value is more than $7.50.  Now who is right?
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stockpicker
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23-Feb-2024 15:49     
 
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 Alert Admin 		Take care.  Trust only when they can show a report.  Most Houses use DCF method to work out the valuation.  The value can change a lot depending on how they input of cash flow.  For example,  the top report gave a fair value of $5.07 but the bottom report gav e $ 5.30.  They are other who said the fair value is more than $7.50.  Now who is right?
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Louistan
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23-Feb-2024 15:36     
 
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 Alert Admin 		Previously when JPM issued their TP of $4.50 after SCI touched $6.09, the price really corrected till $4.50.  So this time if their TP is $5, infers not much room left on the downside, assuming everyone takes JPM seriously.

Louistan      ( Date: 23-Feb-2024 15:31) Posted:

JPM is always underweight. Their previous TP was $4.50. At least now they have increased it to $5. Still an upward revision in TP.

msksmsks      ( Date: 23-Feb-2024 14:18) Posted:

JPM underweight with TP$5

Perhaps, wanna buy cheap and
then push up again
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Louistan
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23-Feb-2024 15:31     
 
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 Alert Admin 		JPM is always underweight. Their previous TP was $4.50. At least now they have increased it to $5. Still an upward revision in TP.

msksmsks      ( Date: 23-Feb-2024 14:18) Posted:

JPM underweight with TP$5

Perhaps, wanna buy cheap and
then push up again

Louistan      ( Date: 23-Feb-2024 13:55) Posted:

Very obvious there is some manipulation going on. I will throw all charts out of the window once these manipulators take control. Just does not make any sense to drop 10% in 3 straight days after good results with postive outlook being announced and TPs being maintained or increased by Analysts. The effort it took to reach $5.80 over 2-3 months from low $5 unraveled in 3 days like as if it announced unexpected losses
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msksmsks
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23-Feb-2024 15:07     
 
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 Alert Admin 		Fm my broker

Checkerman      ( Date: 23-Feb-2024 14:35) Posted:

source from where

msksmsks      ( Date: 23-Feb-2024 14:18) Posted:

JPM underweight with TP$5

Perhaps, wanna buy cheap and
then push up again
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beng1102
Elite
23-Feb-2024 14:48     
 
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 Alert Admin 		SG is a marketing hub very good at marketing.

112233      ( Date: 23-Feb-2024 12:54) Posted:

with such a lousy x-change, sg can be a financial hub ? 

beng1102      ( Date: 22-Feb-2024 15:04) Posted:

Share price drop on bad news that is logical.  Share price drop on news or good result is also acceptable but if drop a lot more then it should be deemed as  suspicious
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Checkerman
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23-Feb-2024 14:35     
 
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 Alert Admin 		source from where

msksmsks      ( Date: 23-Feb-2024 14:18) Posted:

JPM underweight with TP$5

Perhaps, wanna buy cheap and
then push up again

Louistan      ( Date: 23-Feb-2024 13:55) Posted:

Very obvious there is some manipulation going on. I will throw all charts out of the window once these manipulators take control. Just does not make any sense to drop 10% in 3 straight days after good results with postive outlook being announced and TPs being maintained or increased by Analysts. The effort it took to reach $5.80 over 2-3 months from low $5 unraveled in 3 days like as if it announced unexpected losses
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seanpent
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23-Feb-2024 14:25     
 
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 Alert Admin 		tsk tsk tsk ... scary ... manipulators deciding the fate ?

that' s their deed for CNY ?

Louistan      ( Date: 23-Feb-2024 13:55) Posted:

Very obvious there is some manipulation going on. I will throw all charts out of the window once these manipulators take control. Just does not make any sense to drop 10% in 3 straight days after good results with postive outlook being announced and TPs being maintained or increased by Analysts. The effort it took to reach $5.80 over 2-3 months from low $5 unraveled in 3 days like as if it announced unexpected losses.

beng1102      ( Date: 23-Feb-2024 10:09) Posted:

Just bought more @5.28  I expect a strong bonuce back
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msksmsks
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23-Feb-2024 14:18     
 
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 Alert Admin 		JPM underweight with TP$5

Perhaps, wanna buy cheap and
then push up again

Louistan      ( Date: 23-Feb-2024 13:55) Posted:

Very obvious there is some manipulation going on. I will throw all charts out of the window once these manipulators take control. Just does not make any sense to drop 10% in 3 straight days after good results with postive outlook being announced and TPs being maintained or increased by Analysts. The effort it took to reach $5.80 over 2-3 months from low $5 unraveled in 3 days like as if it announced unexpected losses.

beng1102      ( Date: 23-Feb-2024 10:09) Posted:

Just bought more @5.28  I expect a strong bonuce back
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Louistan
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23-Feb-2024 13:55     
 
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 Alert Admin 		Very obvious there is some manipulation going on. I will throw all charts out of the window once these manipulators take control. Just does not make any sense to drop 10% in 3 straight days after good results with postive outlook being announced and TPs being maintained or increased by Analysts. The effort it took to reach $5.80 over 2-3 months from low $5 unraveled in 3 days like as if it announced unexpected losses.

beng1102      ( Date: 23-Feb-2024 10:09) Posted:

Just bought more @5.28  I expect a strong bonuce back.

beng1102      ( Date: 23-Feb-2024 10:03) Posted:

Just buy 200MA will give good support
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Stocky901
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23-Feb-2024 13:06     
 
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 Alert Admin 		The only exchange that is bleeding 🩸 🩸 😱

112233      ( Date: 23-Feb-2024 12:54) Posted:

with such a lousy x-change, sg can be a financial hub ? 

beng1102      ( Date: 22-Feb-2024 15:04) Posted:

Share price drop on bad news that is logical.  Share price drop on news or good result is also acceptable but if drop a lot more then it should be deemed as  suspicious
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112233
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23-Feb-2024 12:54     
 
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 Alert Admin 		with such a lousy x-change, sg can be a financial hub ? 

beng1102      ( Date: 22-Feb-2024 15:04) Posted:

Share price drop on bad news that is logical.  Share price drop on news or good result is also acceptable but if drop a lot more then it should be deemed as  suspicious.

seanpent      ( Date: 22-Feb-2024 14:58) Posted:

if it is, isn' t that tricky


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Checkerman
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23-Feb-2024 12:16     
 
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 Alert Admin 		Better wait

Secret_Squirrel      ( Date: 23-Feb-2024 12:09) Posted:

Waiting for it to drop below $5.00 before accumulating.
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Secret_Squirrel
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23-Feb-2024 12:09     
 
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Yells: "Stay curious but skeptical"
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 Alert Admin 		Waiting for it to drop below $5.00 before accumulating.
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ETHunter
Master
23-Feb-2024 10:27     
 
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 Alert Admin 		Bounce around 5.22?
Yes, can consider 200MA a buying point.

beng1102      ( Date: 23-Feb-2024 10:09) Posted:

Just bought more @5.28  I expect a strong bonuce back.

beng1102      ( Date: 23-Feb-2024 10:03) Posted:

Just buy 200MA will give good support
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beng1102
Elite
23-Feb-2024 10:09     
 
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 Alert Admin 		Just bought more @5.28  I expect a strong bonuce back.

beng1102      ( Date: 23-Feb-2024 10:03) Posted:

Just buy 200MA will give good support.

stockpicker      ( Date: 23-Feb-2024 09:26) Posted:

200MA is a very strong support and 50 MA will be the resistance
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beng1102
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23-Feb-2024 10:03     
 
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 Alert Admin 		Just buy 200MA will give good support.

stockpicker      ( Date: 23-Feb-2024 09:26) Posted:

200MA is a very strong support and 50 MA will be the resistance


stockpicker      ( Date: 22-Feb-2024 11:05) Posted:

Might want to test 5.3
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stockpicker
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23-Feb-2024 09:26     
 
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 Alert Admin 		200MA is a very strong support and 50 MA will be the resistance


stockpicker      ( Date: 22-Feb-2024 11:05) Posted:

Might want to test 5.30

Checkerman      ( Date: 22-Feb-2024 10:44) Posted:

finally test 5.36 within 2 day
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dontbetray
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22-Feb-2024 22:31     
 
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 Alert Admin 		Yesterday and today got married deal 
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