Sembcorp Industries – Driving energy transition

Excerpts from Maybank report

Sembcorp Industries (SGX: U96)

• Sembcorp Industries (SCI) reported FY23 net profit of SGD970m, +11% and marginally ahead of MIBG/street. 2H profit of SGD426m grew 15% YoY.
• Revenue for 2H fell 14% YoY due to lower power prices; this was partly offset by higher revenue from renewable and other business segments.
• Bottom-line growth was driven by higher EBITDA across conventional energy and renewables. Renewables capacity is halfway towards its 2028 target of 25GW.
• While near-term earnings have likely peaked, the green transition theme is intact with a de-risked revenue profile.

We reiterate BUY with an unchanged SOTP-based TP of SGD6.30.

Continued growth for renewables segment

Net profit before EI for the renewables segment grew 42% to SGD200m, from SGD141m in FY22, driven by contributions from acquisitions in China and India, as well as higher contributions from energy storage and solar operations in Singapore. FY revenue from renewables grew 40% YoY to SGD703m while segment adjusted EBITDA grew 45% YoY to SGD601m. Over the year, SCI secured 4GW of gross renewables capacity through organic growth and M&As, bringing group’s renewable capacity to 13.8GW, at 55% of its 2025 target of 25GW. Integrated Urban Solutions revenue fell 6% YoY to SGD418m due to cessation of a public waste collection contract.

Receding tailwind of elevated power prices

Net profit before EI for conventional energy increased 30% to SGD809m in FY23 from SGD622m in FY22 driven by higher power prices. However, 2H saw a slowdown in revenue as power prices came off the peaks sequentially. During the year, SCI secured multiple PPAs for Singapore generation assets, enhancing earnings certainty. 62% of the group’s conventional generation capacity has more than 5 years’ contract tenure.

Likely near-term earnings peak, green theme intact

End of term of operation of Phu My 3 power plant in Vietnam (c. SGD10m profit impact), maintenance downtime of 2 months for Singapore cogen (c.50m of profit impact), lower power prices and higher funding cost should weigh on FY24 earnings.

Valuation/Recommendation

SCI’s de-risked revenue profile (lower merchant risk, long-term PPAs) and ongoing green transition keeps us on BUY with relatively unchanged earnings estimate and TP of SGD6.30.

You can find the full report here and the company website here.