Yahoo Finance Sembcorp Industries’ Share Price Has Dipped 10% This Year: Can the Utility Specialist See a Rebound?
Sembcorp Industries Ltd (SGX: U96), or SCI, achieved an impressive share price performance over the past three years.
At the beginning of 2021, SCI’s share price stood at S$1.71 but rose 17% to end the year at S$2.00.
Over the next two years, the utility and urban development group saw its share price leap 69% and 57.1% in 2022 and 2023, respectively, to end at S$3.38 and S$5.31.
For 2024, SCI’s share price has dipped by 10% thus far to end at S$4.81.
Can the blue-chip group see a potential rebound and see its share price surpass its recent 52-week high of S$6.10?
Multi-year financial improvement
There’s good reason for SCI’s share price to rise over the years.
The group managed to grow both its top and bottom lines as it successfully built its business.
For 2020, revenue came in at S$5.4 billion and a net loss of S$997 million was incurred because of a fair value loss associated with the distribution in specie of shares of Sembcorp Marine, now named Seatrium Limited (SGX: 5E2).
Excluding this loss, the net profit for that year would have been S$157 million.
The decision to divest its vessel and oil rig construction division enabled SCI to post stronger financial numbers.
By 2023, revenue had grown to S$7 billion while core net profit hit S$1 billion, a more than sevenfold increase from the S$157 million chalked up just three years ago.
The group’s dividend per share has also steadily risen in tandem with its performance, going from just S$0.04 in 2020 to S$0.13 in 2023.
A multi-prong growth model
Management has a multi-prong growth model in place to enable each division to enjoy steady growth.
For its Renewables division, gross renewables capacity increased from 3.2 GW back in 2020 to 13.8 GW by February 2024.
This growth is also broad-based and involves countries such as China, India, and Southeast Asia.
For 2023, SCI acquired 228 MW of an operational wind portfolio in India and was also awarded Singapore’s largest solar project to date.
Over at the Integrated Urban Solutions division, SCI saw a healthy 44.2% year on year increase in land sales to 248 hectares in 2023.
Both Indonesia and Vietnam saw better industrial land sales and the group is continuing to build its land bank with three new investment licences totalling 1,290 hectares.
These business development efforts are anchored by cash flow and earnings certainty as SCI signed various power purchase agreements (PPAs).
An 18-year PPA was signed with Micron (NASDAQ: MU) to supply up to 450 MW while another was signed with Singtel (SGX: Z74) for 10 years with an estimated contract value of S$180 million per annum.
2028 strategic plans
Management is thinking further ahead and hopes to build on the healthy momentum achieved by the business thus far.
The group outlined its long-term plans during its 2023 Investor Day last year.
It intends to grow its renewable portfolio to 25 GW by 2028 and is more than halfway to this target.
In line with its goal to reduce emissions intensity, SCI has set a target to reduce its tCO2e/MWh to 0.15 by 2028.
Encouraging progress has been made on this front since 2020 with the emissions level falling from 0.54 in 2020 to 0.29 in 2023.
Through the process of turning its portfolio from brown to green, SCI will also execute an ambitious capital allocation plan to invest S$14 billion between 2024 to 2028.
The bulk (75%) of this money will be channelled to the Renewables segment with 10% going to exploring and expanding on decarbonisation solutions.
Only 5% of this sum will be dedicated to the integrated urban solutions division.
Recent business developments
SCI recently announced several business developments that propel the group towards its 2028 goals.
The group has completed the acquisition of 245 MW of renewables in Vietnam which was first announced in November last year.
As part of this acquisition, SCI will also acquire a 73% stake in a 49 MW hydropower asset.
Upon completion of these transactions, the group’s gross renewable energy capacity will increase to 14.4 GW.
Last month, Sembcorp Development, a wholly-owned subsidiary of the group, added three more Vietnam Singapore Industrial Parks (VSIPs) to its portfolio.
With this addition, SCI now has 18 such projects within Vietnam.
SCI is also signing more PPAs with its most recent secured with GSK plc (LON: GSK) whereby Sembcorp Power will supply up to 10 MW of electricity to all the pharmaceutical giant’s three global manufacturing sites in Singapore.
Get Smart: Look to the future
SCI has built up a sturdy track record of growing both its top and bottom lines since it shed its Marine arm.
Its Investor Day goals also demonstrate management’s commitment to growing its renewable portfolio and reducing emissions intensity for the group.
Recent contract wins have been encouraging and the group’s renewables gross installed capacity will hit a new high of 14.4 GW soon.
The share price decline should be a great opportunity for long-term investors to accumulate shares in a well-managed and high-quality blue-chip name.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
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