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- Group net profit up 9% to S$596.7 million
Sembcorp Industries (Sembcorp) delivered healthy profit growth in the first nine months of 2013 (9M2013). Net profit grew 9% to S$596.7 million from S$548.6 million in 9M2012 while turnover increased 6% to S$7.8 billion from S$7.4 billion. Sembcorp?s main profit contributors continued to be its Utilities and Marine businesses, which contributed 59% and 35% of Group net profit respectively.
The Utilities business achieved 27% growth in net profit in 9M2013 with net profit growing to S$373.7 million from S$293.5 million in 9M2012 mainly due to gains from the initial public offering (IPO) of Sembcorp Salalah Power and Water Company, which were offset by an impairment made for its operations on Teesside in the UK. Excluding these exceptional items, the business achieved a 4% growth in net profit. The Marine business reported a net profit of S$226.3 million in 9M2013 compared to S$225.4 million in 9M2012. Meanwhile, the Urban Development business recorded a net profit of S$12.6 million compared to S$19.3 million in 9M2012.
SMM another set of disappointing 3Q13 results, mainly due to weaker margins. 3Q13 net profit rose 12% y/y to $129.7m, failing to keep pace with the 86% revenue jump to $1.66b, driven by higher revenue recognition for five new rig building projects reaching milestones. EBIT margins came in at 10% (2Q13:13.0%, 3Q12:14.1%), the weakest since 1Q09. Further, associates and interest income was also below expectation (due to start-up losses in India and worse than expected results at Cosco) MBKE reckons operating margins may improve based on average rig prices holding up, despite competition from Chinese and Korean yards. The house further adds premium yards like SMM with limited slots should hold some pricing power with tier-1 drillers. Deutsche Bank however, notes potential execution risks for SMM?s new yard in Brazil expects margins to be pressured as it goes through teething issues such as cost overruns, skilled labour shortages, etc. SMM secured $3.9b of contracts YTD, growing the order book from $12.7b at end 2012 to $13.5b, with completion and deliveries extending till 2019. Latest broker ratings as follows: Maybank-KE maintains Buy with TP: $5.11 (from $5.20) Credit Suisse maintains Neutral with TP $4.00 Deutsche maintains Hold with TP $4.00 CLSA downgrades to Outperform from Buy, cuts TP to $4.50 (from $5.40) OCBC maintains Buy with TP $5.64 (From $5.68)
Shld go up.
Time to sell??
OCBC maintains BUY with $6.48 TP. Note that SCI announced last week that it will expand its water business in China?s Liaoning Province with two new wastewater treatment projects in industrial parks in Panjin City. House see the initial phases of these projects as incremental expansions in China, adding about 10% to the group?s total industrial water capacity in the country. The group?s utilities business in China has seen good growth over the years, with net profit increasing from $6m in 2009 to a forecasted S$50m this year. With the expertise to provide utilities like energy, water and wastewater treatment which will be in demand due to China?s growth, we are optimistic on the long-term prospects of China as a key market for the group. Moreover, SCI has expertise on sustainable living with a focus on environmental protection, which should be in demand in China due to the country?s environmental problems.
Technicals do not look positive with RSI and Stochastics heading downwards toward the oversold region. A close below $4.575 could indicate further downside towards the next support level at $4.78.
SEMBCORP INDUSTRIES LTD bought back 30,000 shares at $4.879 each on 22 Aug
Sembcorp Industries poised for S$107m gain from Salalah listing
As SCI divests 20% of its stake.
SCI currently owns a 60% stake in Sembcorp Salalh, but is required to dispose 20%, which according to OCBC calculations, will likely net SCI a S$36m divestment gain and a S$73m revaluation gain from the remaining 40% stake -- an estimated S$109m booked gain from the Salalah listing.
Here's the complete analysis from OCBC:
Salalah IPO at S$5.17/share. SCI announced that its Oman JV, Sembcorp Salalah Power & Water Co will be listing the Salalah Independent Power and Water Plant (Salalah IWPP) on the Muscat Securities Market on Aug 28, 2013. Sembcorp Salalah will offer 33.41m existing shares, representing 35% of share capital. The shares will be priced at OMR1.59 (approx.S$5.17) per share. The IPO is expected to raise around OMR53m (approx. S$172.2m).
SCI to pare stake to 40%. SCI currently owns 60% stake of Sembcorp Salalah. SCI is required to dispose 20% stake for this IPO. Post listing, Sembcorp will hold a 40% stake in Sembcorp Salalah. Based on 25% equity for the US$1b investment in Sembcorp Salalah, we estimated that SCI cost would be approximately S$188m.
Potential gain of S$109m or 7 Scts/share. Based on Salalah IWPP guided market cap of OMR152m, we estimated that SCI will record 1) S$36m divestment gain from sale of 20% stake and 2) revaluation gain of S$73m for its remaining 40% stake. In total, SCI can look to book S$109m from this exercise.
SOTP raised to S$5.60, upgrade to Buy. We are leaving our earnings forecast unchanged in the absence of financial details. However, as we revalue SCI?s 60% stake in Salalah to its potential market value, our SOTP is lifted to S$5.60. Hence, upgrade to Buy for close to 14% potential upside.
SEMBCORP INDUSTRIES LTD bought back 100,000 shares at $4.9277 each on 20 Aug
SEMBCORP INDUSTRIES LTD bought back 100,000 shares at $4.975 each on 16 Aug
SCI - Technicals appear to be trending dowards, with RSI and Stochastics all coming down from Oversold positions and the counter having breached its 50 Day MA today at $4.99.
A close below these levels could confirm the downtrend.
The resistance turned support of $4.91 could be the next support level.
almost a " classic" [lower wick too long] bullish doji star today, ... ...
Too bad the stock is ranging not trending down.
Today Doji = can be unreliable
support seems at $5.05
Bullish Doji Star
? Direction: Bullish
? Type: Reversal
? Reliability: Moderate
? The first day is long red day
? Second day is a doji that opens at the previous day close
? The doji wicks should not be long
The Doji Star formation starts as the bear market continues with a strong red day. The second day however trades within a small range and closes at or near its open. This small range suggests uncertainty in the market, and in fact candlestick analysts consider the smaller the doji the better for strength of signal. This is taken as a sign that sellers are losing control, bearish momentum is weakening and buyers are regaining control.
For strong confirmation of trend reversal, watch for a blue day with a higher close on the third trading day. Such a formation on the third day would be the strong Bullish Abandoned Baby or Morning Star Doji.
The 3 Numbers That Power Sembcorp Industries
Utilities, shipbuilding and infrastructure titan
Sembcorp Industries (SGX: U96) has its finger in many pies. It is a power generator, it supplies water and it also builds ships. But if that wasn?t enough, it is also a property developer.
From an investor?s perspective, Sembcorp Industries is very good at what it does. It has one of the highest Returns on Equities (ROE) amongst the
Straits Times Index (SGX: ^STI) constituents.
Whilst the average for the top 30 companies in Singapore is a respectable 9%, Sembcorp Industries? ROE is an enviable 14%. It means that Sembcorp investors are earning S$14 for every $100 invested in the business.
Its desirable ROE has been achieved through a good use of its assets to generate sales. The company?s Asset Turnover of 0.8 is significantly higher than the average of 0.49 for the companies that make up Singapore?s benchmark index. The asset turnover can be a measure of a company?s efficiency ? the higher the better. And Sembcorp Industries is quite efficient.
Sembcorp Industries has also taken on bit of debt, which means that investors are benefitting from the company using other people?s money to help fund the business. Sembcorp?s leverage factor of 2.3, whilst higher than the market average, is not excessively high.
What?s interesting, though, is Sembcorp?s profitability. Its net profit margin of 7.4% is around half that of the Straits Times Index average of 19%. But that could just be a feature of the business it is involved in. Utilities don?t often have high profit margins.
By taking apart a Return on Equity, it is easy to see how a company with a lower profit margin can still deliver a decent return for shareholders. In the case of Sembcorp Industries, it has achieved a ROE of 14% through the product of a respectable profit margin of 7.4% an attractive Asset Turnover of 0.83 and a Leverage Ratio of 2.3.
Here's what to blame for Sembcorp's 13% profits drop
But there were positive surprises.
According to DBS, 2Q13 PATMI of S$165m (-13% y-o-y, 7% q-o-q) came in below its forecast (S$170m) and consensus (S$199m) due to weaker Marine and Urban Development.
Here's more:
Utilities, however, surprised on the upside with earnings climbing 18% y-o-y to S$111.9m, above our forecast of S$76m and hitting more than 60% of our original FY13F.
Marine earnings declined 13% y-o-y on weak margins. In 2Q, Utilities accounted for 68% of group PATMI and Marine contributed 46% before allocation of corporate expenses. Group sales dropped 6% y-o-y to S$2.5bn.
Singapore & China are drivers. Despite lower electricity sales and HSFO prices, Singapore profits grew 8% y-o-y to S$69m, partly dragged by one-off charges of S$8m. Net margin expanded to 6.2% from 5% in 2Q12.
China grew the fastest, up 60% y-o-y as AES’ power assets were more profitable in the quarter, thanks to lower coal prices for its coal-fired plants.
Sembcorp Industries (SCI): 2Q13 results below street estimates 2Q13 earnings of $165m (-13% y/y) took its 1H13 earnings to $342m (-7% y-o-y), making up 44% consensus FY13 estimates.
The results also included a $8m gain from the sale of strategic fuel, but this was offset by a $25m fair value loss due to Gallant Venture's $15m allowance for doubtful debts in its China associate.
SCI's utilities earnings rose 18% y/y owing to the $8m gain, primarily from selling strategic fuel in Singapore and higher earnings from the rest of Asean, Australia and India (17% y-o-y) and China (221% y-o-y).
The surge in China came from newly-acquired assets from AES Corp and lower coal prices. SCI believes that the current level of earnings is sustainable.
Its utilities unit accounted for 68% of 2Q13 net profit. Singapore power spread may weaken but overseas contribution to grow. SCI guided that the 1H12 blended power spread was > $50 but shrank by 15% y/y in 1H13.
As more new power plants are expected to start commercial operations in 2H13 in Singapore, this could lead to weaker power spreads.
However, overseas earnings are expected to grow.
OSK DMG expect a stronger 2H13, buoyed by robust marine and urban development earnings. House maintain their BUY rating with TP of $5.85.
Sembcorp Industries suffers 13.3% profit drop to $165.4m
Slower order book in marine segment.
According to OCBC, Sembcorp Industries (SCI) reported a 6.3% YoY fall in revenue to S$2.5b and a 13.3% decrease in net profit to S$165.4m in 2Q13, such that 1H13 figures accounted for about 45% of the firm's full year estimates.
There was a slower order book drawdown in the marine division in the quarter as fewer projects achieved their initial recognition milestones, while 1H13 revenue from the utilities division accounted for about 47% of our full year estimate. Utilities and marine contributed 53% and 39% of SCI’s net profit in 1H13, respectively.
Here's more from OCBC:
SCI saw a S$24.5m loss in fair value of available-for-sale (AFS) assets, mainly due to Gallant Venture’s drop in share price. Recall that the investment was reclassified as an AFS financial asset on 30 Apr 2013 with SCI’s dilution in stake.
Excluding this one-off item, 2Q13 net profit would have been flat vs a year ago. Looking ahead, we understand that subsequent upward revaluations (if any) will be recorded under comprehensive income and will not impact the income statement.
NEWS WATCH Sembcorp Industries ST: target 4.82
Trading Central | 2013-08-05 22:41:00
The MACD is positive and below its signal line.
Our pivot point stands at 5.12.
Our preference: target 4.82.
Alternative scenario: the upside breakout of 5.12 would call for 5.21 and 5.27.
Comment: the RSI is below its neutrality area at 50. The MACD is positive and below its signal line. The MACD must penetrate its zero line to expect further downside. Moreover, the stock is below its 20 day MA (5.07) but above its 50 day MA (4.97).
Supports and resistances:
5.21 *
5.12 **
5.09
5.02 last
4.88
4.82 **
4.77 *
Singapore's Sembcorp Marine Ltd said net profit in the second quarter fell 12.5 per cent to S$124.9 million.
Sembcorp Marine, which competes with crosstown rival Keppel Corporation Ltd in winning orders for offshore drilling rigs, said demand for rigs is expected to remain strong but competition from Chinese and Korean yards will impact margin.
Sembcorp Marine's order book stood at S$12.7 billion, down from S$13.6 billion at the end of the last quarter. - Reuters
Singapore-based Sembcorp eyes stake in NCC Power Projects
HYDERABAD: A Singapore-based company is in advanced talks to buy a power project in
Andhra Pradesh, a rare instance of foreign interest in India's infrastructure sector which has been in the doldrums.
A unit of Sembcorp, which is backed by Singapore's sovereign investor
Temasek Holdings, is expected to buy a majority stake in
NCC Power Projects for $250 million (about Rs 1,500 crore), according to two people with direct knowledge of the negotiations. The deal is expected to be signed in about a month.
NCC Power Projects, a joint venture between Hyderabad-based infrastructure firms NCC and Gayatri Projects, is developing a 1,320MW coal-based thermal power project in Andhra's Nellore District.
While the talks are for the 55% that NCC owns in the project-which is about half complete now and is expected to be ready by March 2015-there are indications that
Gayatri ProjectsBSE 0.63 % could sell part of the 45% stake it owns, a source said.
India's infrastructure sector has been mostly shunned by foreign investors because of troubles related to clearances and problems with land acquisition. Power projects have also suffered because of difficulties in sewing up supply of fuel.
But analysts said that any investment by
Sembcorp Utilities may not indicate a revival. " This could be one-off deal in the Indian power sector," said Anubhav Gupta, an analyst with the Indian arm of Singapore-based
Kim Eng Securities. " I don't think this will trigger investors' interest in power companies." Kim Eng has a negative view on the power sector.
Sembcorp did not reply to an email seeking its comment and an NCC spokesman declined to comment. Gayatri Projects Managing Director Tikkavarapu Sandeep Reddy, who is currently in Singapore, said, " Nothing has been crystallised yet." The deal will be the third major investment in India for Sembcorp, which had revenues of S$10.2 billion (about Rs 48,000 crore) in fiscal 2012, and its second in the country's power sector.
Its previous investments include Kakinada Seaports and
Thermal Powertech Corp, a subsidiary of Gayatri Projects. If a deal is reached it will take the total portfolio of Sembcorp-which bought 49% of Thermal Powertech's 1,320MW power project for 1,042 crore in 2010-to 2,640MW, making it the third-largest foreign player in the Indian power sector after Hong Kong's CLP Holdings and US-based AES Corporation.
" Gayatri may either choose to retain 45% stake in NCC Power Projects or consider diluting a minority stake to Sembcorp," said one of the sources, requesting anonymity. " A decision is yet to be made." In February, Thermal Powertech had agreed to buy about 1 MT of coal a year for 10 years from Indonesia's PT Bayan Resources. The contract is expected to commence in 2014. " If the deal happens at decent valuations, it will help NCC reduce its overall debt burden, bring down interest burden and improve its profit margins," said analyst Teena Virmani of
Kotak Securities.
Sembcorp Industries solid waste management subsidiary, SembWaste, has been awarded a contract worth a total of $299m by the National Environment Agency to provide refuse collection and recycling services to the City-Punggol sector of Singapore. The City-Punggol sector will be formed by the merging of two current sectors served by SembWaste since 2006 under existing contracts: City and the Hougang-Punggol sectors. Sembcorp’s contract for the newly-merged sector will take effect upon the expiry of its existing contracts for City and Hougang-Punggol on 1 Oct 2013 and 1 Mar 2014 respectively. The new contract will last until 30 Jun 2021. At its last closing price of $4.84, Sembcorp Industries trades at 11.5x trailing P/E and 1.8x P/B.
