Sembcorp Industries kept at &lsquo buy&rsquo by OCBC with fair value of $4.31

SINGAPORE (Aug 5): OCBC ( Financial Dashboard) is maintaining its &ldquo buy&rdquo call on Sembcorp Industries ( Financial Dashboard), the power, utilities and water group, with a fair value of $4.31 based on its good 2Q15 results.

Although intense competition in the power market is likely to persist, and low oil prices also mean that the marine division may continue to be a drag, in a report out today OCBC lead analyst Low Pei Han believes these concerns have already been priced in.

Sembcorp Industries reported a 5.8% y-o-y drop in revenue to $2.4 billion but a 24.9% increase in net profit to $223.6 million in 2Q15, such that 1H15 net profit accounted for 50% of its full-year estimate.

Stripping out one-off items such as the $54.7 million gain on disposal of Sembcorp Bournemouth Water Investment and fair value losses on financial instruments, Low is estimating core PATMI to be around $191 million, still within expectations.

The utilities segment was boosted by better performance in the solid waste division with favourable contract renewals, bringing net profit for Singapore utilities to $36.4 million in the quarter, compared to $30.9 million in 1Q15.

As for overseas utilities, net profit was also higher at $60.6 million vs $50.1 million in 1Q15. The first unit of the TPCIL power plant in India started operation in 1Q15, and the plant will be in full operation by 3Q15. In the urban development segment, net profit increased to $11.9 million in 2Q15 due to higher contribution from the Nanjing and Chengdu projects in China.

As at 11.20am, Sembcorp Industries is up 9.3% to $3.78.