DBS Research < News Analysis> Beneficiary of higher gas price and volatility

• Operations in Oman and the UAE, which contribute about 8% of net profit, are  so far  unaffected no disruption to gas supply is expected, with no LNG cargoes scheduled from the Middle East over the next few months.
• Minimal impact is expected from higher gas costs for power plants, as long-term contracts generally have cost pass-through mechanisms with an fixed spread.
• Potentially net positive impact from higher gas prices and volatility for the gas trading arm, driven by gains on gas hedges and higher gas trading volumes and margins.
• Reiterate BUY TP SGD7.30 growth path expected to resume from FY27.

Beneficiary of higher gas prices and volatility.  About 50% of Singapore&rsquo s natural gas consumption is imported via piped gas (PNG) from Indonesia and Malaysia, while the remaining from sea-transported Liquefied natural gas (LNG). Qatar, which accounts for 20% of global LNG supply, is estimated to be Singapore&rsquo s largest LNG source at over 40% of LNG imports (i.e., about 20% of Singapore&rsquo s total gas supply). However, Sembcorp Industries (SCI) has no scheduled LNG cargoes from Qatar over the next four to five months, so its supply should not be disrupted. On the cost side, SCI&rsquo s power generation capacity is mostly contracted under long-term arrangements with cost pass-through mechanisms, implying minimal impact from higher fuel costs. Moreover, SCI actively hedges its gas-price exposure, limiting the effect of short-term price swings. SCI does, however, have water and power operations in Oman (Salalah) and the UAE (Fujairah) that contribute about 8% of net profit these operations remain unaffected so far.

In fact, historically, SCI tends to see a net positive impact from higher gas prices and volatility, via positive fair value gains on gas hedges and potentially higher gas trading volumes and margins for its gas trading arm. In a prolonged disruption lasting weeks to months, we previously observed a SGD30&ndash 100m earnings impact. 

Growth path to resume from 2027. Core profit (excluding exceptionals and DPN forex) is likely to be stable at about SGD1bn in FY26, with the Alinta acquisition offsetting weaker Singapore power spreads and softer China renewables.  Gas & Related Services  could see SGD30&ndash 40m lower earnings on weaker Singapore spreads for recontracted capacity, particularly at the Senoko assets.  UK operations  may be weaker by about SGD30m due to a four-week maintenance shutdown at the Sembcorp Biomass Power Station (Wilton 10) in mid‑ 2026.  China renewables, which fell to SGD74m in FY25 (from SGD89m in FY24) due to higher curtailment (around SGD30m impact, partly offset by SGD15m from an additional 900MW of capacity), will be further hit by the removal of VAT rebates for onshore wind (about SGD12m impact).  Urban Solutions  should be stable excluding one‑ off fair value gains (SGD27m), with Vietnam land sales remaining weak. These earnings headwinds are expected to be offset by contributions from  Alinta  (around SGD100m from 2H26).

The growth trajectory is expected to resume from 2027, supported by new capacity from a 600MW highly efficient H‑ class power plant in Singapore by end‑ 2026 and a doubling of India renewable capacity in 2027&ndash 2028. Singapore&rsquo s gas portfolio is projected to rise from 1.2GW to 1.8GW (generation likely from about 800MW to over 1.3GW), while Senoko&rsquo s generation could ramp up from roughly 1.2GW to around 1.6GW. We have fine‑ tuned our earnings forecasts to reflect these changes and reiterate BUY, with a slightly adjusted TP of SGD7.30, based on 13x FY26 PE.

• Sembcorp FY25 revenue and adj. PATMI were within expectations at 94% and 95%. 2H25 adj. PATMI declined 2.5% y-o-y to S$512mil.
• Earnings faced multiple pressure points, including lower electricity spreads, imported power losses, a drop in gas trading margins, and widening curtailment in China. The acquisition of 20% stake in Senoko in June offset some of the weakness. FY25 dividend per share raised 9% to 23 cents.
• The pressure on earnings is expected to persist in FY26. Electricity contracts are being renewed at 50% lower spreads. Senoko will be impacted severely. UK power is facing weak demand and a maintenance shutdown. China' s renewables are facing rising curtailment, plus the removal of VAT refund. The build-up of renewable capacity in India remains the only source of growth.

The Positive

Growth in renewable capacity.

• Renewable capacity (attributable) grew 19% y-o-y to 9.878 GW, of which 35% is in India, solar and wind.
• In FY25, India' s capacity jumped 27% y-o-y to 3.4 GW, largely due to a doubling of solar power capacity. Singapore registered a 24% increase to 1 GW.