2Q15 boosted by divestment gains; close to trough valuation
EPS:
!
TP:
!
Gerald Wong, CFA / Research Analyst / 65 6212 3037 /
[email protected] Shih Haur Hwang / Research Analyst / 65 6212 3024 /
[email protected]
● Sembcorp's 2Q15 underlying net profit was below expectations, driven by weakness in Marine and Utilities. Interim DPS was maintained at S$0.05. ● Utilities' net profit of S$142 mn in 2Q15 was boosted by a S$55 mn gain on sale of Bournemouth Water, a debt provision write-back of S$7 mn in China and insurance claims of S$6 mn in the UK. Excluding these one-offs, we estimate 2Q15 underlying Utilities net profit will be S$74 mn, stable from 1Q15 profit of S$75 mn, but below consensus FY15 profit forecast of S$345 mn. ● While contribution from its solid waste business in Singapore increased in 2Q15, this was offset by a S$9 mn loss on start-up of TPCIL in India, as well as continued weakness in the Singapore power market. ● We reduce our 2015-17E EPS by 4-9%, driven by lower Utilities and Marine estimates. As a result, our target price is reduced to S$3.80 (from S$4.20). We expect valuation support as SCI is trading at 1.1x P/B, close to its 2008-09 lows. Maintain NEUTRAL.
"
#
%
&
'
(
)
#
*
(
(
*
#
+
,
#
2Q15 15E %15E 36 146 46% 25 68 66% 9 84 25% 14 44 52% 10 27 58% 3 11 64% 45 -21 n.m 142 359 60%
Figure 3: Singapore Utilities net profit In S$ mn 1Q14 2Q14 Energy 37 29 Water 7 7 On-site logistics/ Solid waste 9 10 Singapore Utilities 53 47 Source: Company data, Credit Suisse estimates
3Q14 41 11 10 61
4Q14 27 14 16 56
1Q15 12 9 10 31
2Q15 13 10 14 36
Singapore PATMI increased to S$36 mn in 2Q15 from S$31 mn in 1Q15, due to better performance from its solid waste business. Energy PATMI remained weak at S$13 mn in 2Q15, vs S$12 mn in 1Q15, due to continued intense competition in the power market which has led to lower pool spark spreads and contract retailing prices. At the same time, vesting contract levels have fallen from 40% to 30% in 1H15. As a result, Singapore power was loss-making in 2Q15. We expect Singapore PATMI to be impacted as the vesting contract level falls further to 25% in 2H15 and 20% in 2016. "
'
*
-
+
$
(
&
,
.
/
0
1
#
,
&
'
(
+
2
#
$
$
Urban Development PATMI increased to S$12 mn in 2Q15 from S$1 mn in 1Q15, due to higher contributions from its Nanjing and Chengdu projects. Management expects Urban Development to deliver a performance comparable to 2014, driven by a pipeline of customers in Nanjing and Chengdu, as well as interest for industrial land in Vietnam.
Figure 1: Results summary Reported results Change (%) 6M15 FY15E FY15 2Q14 1Q15 2Q15 QoQ YoY as % 2,534 2,338 2,388 2 (6) 4,726 10,071 47% 1,158 958 1,124 17 (3) 2,082 4,075 51% 1,340 1,303 1,207 (7) (10) 2,511 5,782 43% 36 76 57 (25) 58 133 214 62% 179 142 224 57 25 366 722 51% 93 75 142 90 52 216 359 60% 80 65 67 3 (16) 131 310 42% 5 1 12 1,014 147 13 44 29% 10 2 3 79 (65) 5 9 62%
0
'
#
'
#
#
3
'
Marine revenue fell to S$1.21 bn in 2Q15 from S$1.30 bn in 1Q15, as construction of Sete Brasil drillships slowed down. Management noted that some customers are deferring rig delivery due to low demand. In particular, Transocean has requested for two drillships to be delayed by 24 months. As a result, Sembcorp Marine’s net gearing has increased further to 0.51x as of 2Q15 from 0.28x in 1Q15.
Source: Company data, Credit Suisse estimates
#
Utilities net profit of S$142 mn in 2Q15 was boosted by a S$55 mn gain on sale of Sembcorp Bournemouth Water Investment (SBWI) in April 2015. China PATMI increased from S$20 mn in 1Q15 to S$25 mn in 2Q15, due to a debt provision write-back of S$7 mn. UK PATMI increased from S$5 mn in 1Q15 to S$10 mn in 2Q15, due to insurance claims of S$6 mn. Excluding these one-offs, we estimate 2Q15 underlying Utilities net profit will be S$74 mn, stable from 1Q15 profit of S$75 mn. PATMI from rest of ASEAN, Australia, India fell to S$9 mn in 2Q15 from S$12 mn in 1Q15, driven mainly by a S$9 mn loss on start-up costs on Phase One of TPCIL. Management noted that the first 660MW plant has ramped up to achieve 90% load factor in June 2015. Green Infra generated a profit of S$4mn in 2Q15, reversing a S$2 mn loss in 1Q15 with an improvement in the wind load in India.
Click here for detailed financials
$
2Q14 3Q14 4Q14 1Q15 Net profit 47 61 56 31 Singapore 17 14 23 20 China 13 20 18 12 Rest of ASEAN, Australia, India 14 10 11 9 Middle East & Africa 6 9 5 5 UK 2 3 5 4 The Americas -6 -3 -9 -7 Others 93 114 109 75 Total Source: Company data, Credit Suisse estimates
Note 1: Sembcorp Industries Ltd is an investment holding company. The Company’s principal activities include investment holding, as well as the corporate headquarter, which gives direction and provides management services to its subsidiaries.
#
Figure 2: Utilities' underlying net profit (S$mn)
Bbg/RIC SCI SP / SCIL.SI Price (04 Aug 15 , S$) 3.46 Rating (prev. rating) N (N) TP (prev. TP S$) 3.80 (4.20) Shares outstanding (mn) 1,787.55 Est. pot. % chg. to TP 10 Daily trad vol - 6m avg (mn) 3.6 52-wk range (S$) 5.43 - 3.36 Daily trad val - 6m avg (US$ mn) 10.9 Mkt cap (S$/US$ mn) 6,184.9/ 4,490.0 Free float (%) 23.8 Performance 1M 3M 12M Major shareholders Temasek Holdings Absolute (%) (11.5) (23.1) (36.3) (49.46%) Relative (%) (7.0) (15.3) (32.4) Year 12/13A 12/14A 12/15E 12/16E 12/17E EBITDA (S$ mn) 1,390 1,454 1,450 1,504 1,454 Net profit (S$ mn) 820.4 801.1 659.9 699.5 732.5 EPS (S$) 0.46 0.45 0.37 0.39 0.41 Core EPS (S$) 0.46 0.45 0.37 0.39 0.41 - Change from prev. EPS (%) n.a. n.a. (8.7) (6.3) (4.2) - Consensus EPS (S$) n.a. n.a. 0.41 0.42 0.41 EPS growth (%) 8.4 (1.9) (17.6) 5.9 4.6 P/E (x) 7.6 7.7 9.4 8.8 8.5 Core P/E (x) 7.5 7.7 9.4 8.8 8.5 Dividend yield (%) 4.9 4.6 4.6 4.6 4.6 EV/EBITDA (x) 4.3 6.3 5.9 5.6 5.8 P/B (x) 1.2 1.1 1.0 1.0 0.9 ROE (%) 17.2 15.1 11.4 11.3 11.0 Net debt(cash)/equity (%) (3.3) 41.6 32.1 28.8 26.5
(S$ mn) Revenue - Utilities - Marine - Others PATMI - Utilities - Marine - Urban Dev - Others/Corporate
