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PhillipCapital maintains 'neutral' call on Sembcorp, expects energy prices to 'normalise' through FY2023

Bryan Wu
·2-min read

Analyst Terence Chua has upped his TP to $3.27 from $2.96.

PhillipCapital analyst Terence Chua has maintained his “neutral” call on Sembcorp Industries, despite the company posting profits for 1HFY2022 ended June that were “ahead” of expectations, while raising his target price (TP) to $3.27 from $2.96 previously.

Chua has raised his Sembcorp estimates for FY2022 and FY2023 Patmi by 86% and 61% respectively after accounting for higher profits from its conventional energy and renewable energy segments. His higher TP is still based on 1.2x FY2022 P/Bv, the average of its peers.

In his report dated Aug 17, Chua says that Sembcorp’s 1HFY2022 results were lifted by its energy segments with macroeconomic conditions causing rising energy prices, which he expects to moderate “slightly” in the next half of the financial year before “normalising” in FY2023.

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“Management continued to guide for the conventional energy segment to perform well in
the second half of this year as global energy markets remain firm. Despite this, we expect
energy markets to moderate slightly in 2HFY2022. Uniform Singapore Energy Prices (USEP) in July were around 9% lower than 1HFY2022’s average,” writes Chua.

He believes that Sembcorp’s battery segment will be a  key growth driver in the medium- to long-term, with the company reaffirming its battery business as a key growth driver for the company, in line with its strategic plan announced at its Analyst Day in 2021.

Sembcorp currently has 120 megawatts (MW) of energy storage in the UK which holds an important role in helping to stabilise the grid as the UK continues its pivot towards renewables, and is currently in the process of building a 360MW battery facility in Teesside, also in the UK. “When completed, [the Teesside facility] will boost the group’s capacity to take advantage of more volatile, uncertain markets with the rise of intermittent renewables,” says Chua.

Negatively, he notes that lower land sales were a drag for Sembcorp’s integrated urban solutions business, which was offset by other segments.

“Higher contribution from Wilton 11 in the UK was offset by higher operating costs for the waste business in Singapore. Despite lower land sales, the group remains confident of hitting its target of 500ha of land sales by FY2025 as it plans the development of the 481-hectare Quang Tri Industrial Park in Vietnam and the 1,000ha of VSIP Binh Duong III,” Chua writes.

Chua has modelled a full half-year contribution from the newly acquired SDIC New Energy
and Shenzhen Huiyang in China for Sembcorp’s renewables segment, as well as an estimated 30% dividend payout ratio, in line with FY2021’s payout. “We expect SCI to pay out 16 cents of dividends for FY2022, translating to an estimated 4.9% dividend yield,” he says.

As at 3.12pm, shares in Sembcorp Industries were trading 2 cents or 0.62% up at $3.26.

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