Jeffrey Tan  19/05/2020, 12:33pm

SINGAPORE (May 19): Analysts are mixed on their performance outlook of Sembcorp Industries&rsquo energy business, which is expected to be &ldquo markedly lower&rdquo this year compared to last year.

In a business update released yesterday, Sembcorp said that the reduced economic activity due to lockdown measures in multiple markets has resulted in a decrease in energy demand and prices.

As a result, its merchant operations in Singapore, India and the UK have seen power demand decline by 10% to 25% y-o-y in April.

CGS-CIMB Research believes the company&rsquo s India arm could post &ldquo slight losses&rdquo for 1Q FY20.

This is unless a reversal of provisions is made during the quarter due to the sub-optimal performance of SEIL 2, its second power plant in India. The brokerage has found that average utilisation at its first Indian power plant &ndash SEIL 1 &ndash was 88% from January to April.

However, the average utilisation at SEIL 2 was just 47% over the same period.

Moreover, spot power prices were 6% lower q-o-q at about Rs2.66 (5 cents) per KWh.

&ldquo We believe this could have widened SEIL 2' s losses during the quarter,&rdquo CGS-CIMB head of research Lim Siew Khee writes in a note dated May 18.

Nevertheless, DBS Group Research expects an earnings recovery for Sembcorp&rsquo s energy business once the novel coronavirus (Covid-19) pandemic has subsided.

The brokerage notes that SEIL 1 is starting to contribute more steadily at $15 million to $20 million a quarter to the company&rsquo s bottom line.

Losses at SEIL 2 should narrow to a near-breakeven level with load factor & tariff improvements, it adds.

Furthermore, the commencement of two power plants in Myanmar and Bangladesh in 1H FY19, should contribute their maiden full-year earnings this year. &ldquo Energy in emerging markets remain the growth engine,&rdquo DBS analyst Ho Pei Hwa writes in a May 19 report.

Both CGS-CIMB and DBS have maintained their &ldquo hold&rdquo rating for the stock with a lower target price of $1.76 and $1.70, respectively.