Conglomerate│Singapore│Equity research│October 29, 2015

Company Note ▎Singapore

Sembcorp Industries

ADD (no change)

Divestment gains to the rescue

Current price: Target price: Previous target: Up/downside:

S$3.58 S$3.91 S$3.86 9.1%

Reuters: Bloomberg: Market cap:

SCIL.SI SCI SP US$4,546m S$6,392m US$13.74m S$19.27m 1,784m 50.0%

Average daily turnover: Current shares o/s Free float:

■

3Q15 core profit of S$104.6m was below our estimates and consensus due to weaker SMM earnings. 9M formed 66% of our full-year forecast.

■

3Q15 reported profit of S$122.3m included S$17.7m of divestment gain from the Zhumadian China Water company.

■

Utilities Singapore’s profit would have been S$46m in 3Q15 if not for S$16m provision for doubtful debts made for Jurong Aromatics Corporation (JAC).

■

EPS cut by 2-7% for FY15-17 to reflect our marine earnings downgrade. Our target price is raised as we roll forward to CY17, based on an SOP valuation.

■

Maintain Add, with stronger power prices in India and Singapore as potential catalysts..

Singapore affected by JAC’s provision Utilities Singapore’s 3Q15 core net profit dropped 16% qoq to S$30.6m which included a S$16m provision for doubtful debts for JAC which is undergoing receivership. The amount provided is based on 50% of amount past due for six months. The receiver has requested SCI to continue with its supply of steam and water, suggesting that these amounts are likely to be recoverable.

Key changes in this note FY15F EPS decreased by 7% FY16F EPS decreased by 2%. FY17F EPS decreased by 2%

Spark spread remained stable in Singapore despite lower VCL Price Close

Relative to FSSTI (RHS) 102.0

4.80

95.0

4.30

88.0

3.80

81.0

3.30

74.0

2.80 20 15 10 5

67.0

Vol m

5.30

Oct-14

Spark spread spiked by 15-20% qoq in Jul-Aug due to the maintenance shutdown of some gencos. This caused the power segment to deliver a c.S$4m profit in 3Q15 vs. a loss of S$5m/quarter in 1Q15-2Q15. Excluding the temporary spike, spark spread has stabilised in 3Q15 despite a lower vesting contract level (VCL) of 25% (30% in 2Q15). We see potential for earnings upside in FY16-17 if spark spread remains. We have factored in wider losses of S$7m-8m losses/quarter.

Expect finalisation of more PPAs in India by end-15 Jan-15

May-15

Aug-15

Source: Bloomberg

Price performance Absolute (%) Relative (%)

1M 3.8 -3.9

3M -4.5 4.1

12M -25.9 -19.0

TPCIL registered a wider loss of S$12m in 3Q15 (S$9m in 2Q15), capturing upfront facilities costs, interests and depreciation for unit 2 that started operation in Sep 15. SGI also delivered stronger qoq earnings (2Q15: S$3.8m) with a seasonally stronger wind load factor. Both TPCIL unit 1 and 2 have been operating above 90% plant load factor since Sep 15. Management expects to finalise the second PPA of 600MW for unit 1 and the first 500MW PPA for unit 1 by Dec 15..

Urban development to be weaker in FY15 vs. FY14 Urban development 3Q15 net profit of S$4.6m (-61% yoy and 6% qoq) missed its guidance of a stronger 2H15 due to lower land quota distributed in Nanjing. Management attributed the lower quota to a timing difference and expects normalisation to take place in FY16, with higher land sale price.

Divestment gains may sustain dividend Including the latest divestment of SembSita Pacific Australia (gain of c.S$350m to be recognised in 4Q15), SCI should register a total EI gain of S$422m in FY15. Assuming SCI pays 25% from the EI gain, a special DPS of S$0.06 could bring total DPS to S$0.17 (S$0.11 on core EPS). This could translate into a yield of 4.7%. Our forecasts have excluded the SembSita S$350m gain and potential for a special dividend. Analyst

Financial Summary

LIM Siew Khee T (65) 6210 8664 E [email protected]

Revenue (S$m) Operating EBITDA (S$m) Net Profit (S$m) Core EPS (S$) Core EPS Growth FD Core P/E (x) DPS (S$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) ROE % Change In Core EPS Estimates CIMB/consensus EPS (x)

Dec-13A 10,798 1,463 820.4 0.46 8.9% 7.75 0.17 4.80% 3.72 9.3 (5.5%) 1.22 16.9%

Dec-14A 10,895 1,436 801.1 0.45 (3.6%) 7.99 0.16 4.49% 6.31 535.3 42.5% 1.14 14.8%

Dec-15F 9,371 1,282 644.2 0.32 (27.2%) 11.05 0.13 3.60% 8.15 NA 55.6% 1.06 10.0% (7.08%) 0.94

Dec-16F 11,004 1,585 671.7 0.37 15.2% 9.59 0.13 3.75% 6.89 10.9 53.5% 0.99 10.8% (1.70%) 0.96

Dec-17F 10,515 1,724 722.1 0.40 7.5% 8.92 0.14 4.04% 6.25 5.5 44.4% 0.92 10.8% (1.86%) 1.03

SOURCE: COMPANY DATA, CIMB FORECASTS

1

Conglomerate│Singapore│Equity research│October 29, 2015

Company Note

Figure 1: Results comparison Results summary FYE Dec (S$ m) Revenue Operating costs EBITDA EBITDA margin (%) Depn & amort. EBIT Interest expense Interest & invt inc Associates' contrib Exceptionals Pretax profit Tax Tax rate (%) Minority interests Net profit

3QFY15

3QFY14

2,399.0 3,069.0 (2,138.1) (2,699.5) 260.9 369.5 10.9 12.0 (92.5) (73.6) 168.3 295.9 (64.9) (12.2) 8.0 5.9 21.2 25.3 17.7 0.0 150.3 314.9 (10.9) (52.4) 7.3 16.7 (17.0) (65.8) 122.3 196.6

EPS (cts) Core Net Profit Core EPS (cts)

yoy % chg (21.8) (20.8) (29.4) 0.0 25.8 (43.1) 430.2 35.7 (16.3) n.m (52.3) (79.2) 0.0 (74.1) (37.8)

qoq % 3QFY15 chg Cum 0.5 7,125.5 5.1 (6,212.6) (26.3) 912.9 0.0 12.8 (10.1) (279.8) (33.0) 633.1 14.8 (152.7) 23.3 20.1 nm 119.7 nm 72.4 (52.2) 692.7 (73.5) (92.5) 0.0 13.4 (65.7) (112.1) (45.3) 488.1

3QFY14 yoy % Prev. Cum chg FY15F Comments 8,230.3 (13.4) 10,218.1 9M15 formed 70% of FY15, lower marine offset by utilities 5,161.0 (220.4) (8,838.2) Lower costs, in line with lower revenue 1,014.8 (10.0) 1,379.8 12.3 3.9 13.5 Below due to marine (217.5) 28.6 (357.0) In line 797.3 (20.6) 1,022.8 Below,9M15 accounts for 62% of FY15 due to weaker marine (47.0) 225.1 (102.5) Above, higher interests fr marine 15.0 33.9 10.2 Above 122.8 (2.5) 122.6 Above 0.0 nm 0.0 Included S$17.7m gain fr divestment of China Zhumadian Water 888.2 (22.0) 1,053.2 Below, 9M15 at 66% of FY15 due to weaker marine (136.6) (32.3) (179.2) Below 15.4 (13.1) 17.0 Lower tax rate due to w/back for tax incentives in marine (191.1) (41.4) (246.4) 560.5 (12.9) 627.7 In line, 9M15 formed 78% of FY15 due to EI gain

6.3 104.6

10.9 196.6

(42.4) (46.8)

(48.4) (38.0)

26.3 415.7

31.1 560.5

(15.4) (25.8)

6.0

10.9

(45.1)

(36.6)

23.3

31.1

(25.2)

35.1 627.7 Below, 9M15 at 66% of FY15 due to weaker marine 35.1 SOURCES: CIMB, COMPANY REPORTS

Figure 2: Segmental breakdown by business FY Dec (S$m) Segmental sales Utilities Marine Engg Urban development Others Total Segmental PATMI ex EI Utilities Marine Engg Urban development Other business Corporate Total

3QFY15 1,159.0 1,130.0 1.0 109.0 2,399.0

72.5 19.6 4.6 13.2 (5.4) 104.5

3QFY14 yoy % qoq % chg chg 1,306.0 (11.3) 3.1 1,711.0 (34.0) (6.4) 1.0 0.0 (50.0) 51.0 113.7 98.2 3,069.0 (21.8) 0.5

114.1 (36.5) 80.0 (75.5) 4.9 (6.1) 8.6 53.5 -11.0 (50.9) 196.6 (46.8)

(16.5) (70.6) (61.3) 41.9 (6.9) (38.1)

3QFY15 Cum 3,241.0 3,641.0 4.0 239.0 7,125.0

233.8 151.0 17.6 32.2 (19.0) 415.6

3QFY14 yoy % Prev. Cum chg FY15F Comments 3,678.0 (11.9) 5,079.2 Below, lower Singapore revenue 4,385.0 (17.0) 4,924.2 Broadly in line 4.0 7.7 Below 163.0 46.6 207.0 Above 8,230.0 (13.4) 10,218.1 Broadly in line, 9M15 accoutns for 7% of FY15b

298.5 234.1 29.2 22.4 -23.8 560.4

(21.7) (35.5) (39.7) 43.8 (20.2) (25.8)

314.6 256.2 48.7 38.1 -30.0 627.7

In line, 9M15 at % of FY15 Below, lower-than-expected rig-building Below, lower land sale quota from Nanjing Above Below, 9M15 accounts for 66% of FY15 due to weaker marine SOURCES: CIMB, COMPANY REPORTS

2

Conglomerate│Singapore│Equity research│October 29, 2015

Company Note Figure 3: Utilities breakdown by country Revenue (S$'m) SG China Rest of Asia Middle East & Africa UK The Americas Intersegment PATMI ex EI SG China Rest of Asia Middle East & Africa UK The Americas Corporate / Others

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

yoy % qoq %

1,035.7 34.7 1.3 22.1 116.7 12.1 -8.6 1,214.0

996.9 35.8 1.3 24.4 98.5 10.9 -9.8 1,158.0

1,139.3 36.7 0.6 26.0 103.6 10.7 -10.9 1,306.0

974.7 49.4 2.0 27.4 117.0 12.9 -10.4 1,173.0

772.4 38.0 12.4 25.4 102.8 13.7 -6.7 958.0

868.3 38.8 104.6 26.4 80.7 13.0 -7.8 1,124.0

848.3 38.1 159.7 29.1 82.5 12.2 -10.9 1,159.0

-26% 4% nm 12% -20% 14% 0% -11%

-2% -2% 53% 10% 2% -6% 40% 3%

52.8 16.7 12.2 7.0 3.8 2.2 -3.1 91.6

46.7 17.2 13.2 13.5 5.9 1.9 -5.6 92.8

61.3 14.2 20.0 9.7 9.3 2.7 -3.1 114.1

56.4 18.4 23.0 11.4 4.6 4.5 -8.9 109.4

30.9 19.9 12.1 8.7 5.3 4.1 -6.5 74.5

36.4 25.0 8.6 13.9 10.0 3.1 -10.2 86.8

30.6 20.1 12.3 13.8 7.6 2.9 -14.8 72.5

-50% 42% -39% 42% -18% 7% 377% -36%

-16% -20% 43% -1% -24% -6% 45% -16%

Low er turnover fr. Low er sparkspread due to Weaker HSFO. Qoq profit - low er pow er prices. EBIT 8% mainly due to low er w as negative for Pow er sparkspread. New segment due to contracts renew ed at insufficient capacity on low er rates. Environment high margin to offset the is still challenging. Water addtional depreciation from and solid w aste had tax Banyan Cogen. Expect w rite/back of S$8m. 2H15 to be w eaker from Water stable. Solid w aste low er Vesting Contract biz improved and from 30% to 25%. sustainable Low er w ind factor in Yang Cheng higher vol. - Steady contribution from the 3x inner Mongolia government despatched Shanghai Caojing and pow er assets (148MW) more. Coal is still cheap. Ynag Cheg and some grid Caojing also did better. constraints. Mgt guided This is offset by low er for similar trend ahead w ind plant due to grid constraints and low er w ind factor. Municipal w ater also did better

Stable qoq spark spread. We have assumed w eaker 2H15 on low er VC. Solid w aste and w ater conitnue to remain stable in 2H15

Profit w ould have been S$16m higher if not for the provision for doubtful debts for JAC. Spark spread spiked 15-20% in 3Q15 mainly due to shutdow n of some gencos for maintenance. Despite at a low er VCL in 2H15, spark spread is expected to remain stable.

Profit b/dow n: existing 33% stake in PM3: S$3.5m; Sembsita: S$6m. Included S$13.5m gain on acq fr the additional 33% in PM3 offset by impairment loss (S$3.4m). Sembsita w as w eaker qoq affected by low er AU$ and less solid w aste (trend w ill continue)

TPCIL loss: S$9m; SGI profit S$3.8m. Wind load fpr SGI is from May to Oct. Strong in 2Q and 3Q seasonally. TPCIL June/July plant laod factor at 90+%. 2nd unit to start in 3Q15. FY15 contribution fr TPCIL is minimal. Australia solid w aste op also affected by w eaker AUD

Comments Competition is still stiff, Spark spread stable qoq. subsequent qtrs may be Expect stable 2H14 w eaker; 1-month plant maitenance SG

Strong yoy from cheaper coal feedstock in Yangcheng coal-fired plant China

Rest of Asia

Summer months high consumption ; and S$1+m LD claims

Middle East & Africa

Uk

The Americas

Strategic fuel sale S$5.8m. Spark spread steady -3%qoq. Centralised utilities/ w ater/ solid w aste make up 75% of Sg profit

Above, focus on green energy and w ater business

Higher profit fr Phu My 3 due to increased stake; Incl. S$3m insurance claim. Expected to have planned shutdow n in 3Q/4Q15 (not material), Sembsita did better in 4Q14 (seasonally stronger in 4Q)

Incl. S$2m insurance claims

Include c.S$4m gain of land sales, core profit mainly from Bournemouth. Teeside very minimal profit.

Inc. S$6m w /off and S$2m gain from sale of Emergency Response biz. UK expect to remain stable in FY15. Expected to have planned shutdow n in 1Q15 (not material)

No contribution fr TPCIL in 1Q15. Green Infra also suffered S$1.6m loss due to low w ind season. 1Q and 4Q losses. Depreciating A$ also resutled in low er translation from Sembsita

Steady core operations. No one-off. Shanghai Included S$7m of Caojing performed w ell recovery of prov. Of doubtful debts fr. government agencies

Seasonally stronger in 2Q due to summer months

Stronger qoq due to SembSita Australia and SGI w hich have higher qoq w ind load. TPCIL loss: S$12m (higher interests, depre front-loaded).

Stable

Expect low er contribution from 3Q15 due to loss of Included insurance claim No one-off. Stronger income from Bournemouth of S$6m generation w ater assets (S$13-14m) for 2Q15-4Q15

Mainly municipal w ater

Corporate / Others

SOURCES: CIMB, COMPANY REPORTS

3

Conglomerate│Singapore│Equity research│October 29, 2015

Company Note Figure 4: Singapore utilities profit breakdown by business

Energy- pow er Energy- gas & steam Energy total Water On-site solid w aste Total

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

13.2 23.9

11.7 17.6

15.3 25.3

3.4 23.4

-5.0 17.2

-5.0 17.9

4.3 5.4

qoq n.m

yoy -72%

37.1 7.2

29.3 7.2

40.6 11.3

26.8 14.3

12.2 8.9

12.9 9.9

9.7 8.0

-70%

-79%

-25%

-76%

-19%

8.5 52.8

10.2 46.7

9.5 61.4

16.0 57.1

9.8 30.9

13.6 36.4

12.9 30.6

-5%

-29% 36%

-16%

-50%

Weaker spark spread; low er fuel price and roll-on renew al at low er rates. Banyan depreciation and higher interests kick in fully in 4Q14

NO ONE-OFF. Spark spread remains w eak in 2Q15. How ever pool price spiked in July to max of c. S$500/MW (unplanned shut dow n of some gencos). SCI's market share could have improved in July. How ever uncertainty remains in 2H15 w ith Hyflux comin in low ering VC impact.

Spark spread spiked 15-20% in July-Aug due to shutdow n of some gencos for maintenance. Pow er segment sw ing into profitability in 3Q15 but this w ill normalise into S$-5m loss in 4Q15.

Gas expeted to be stable. 4Q14 inc. tax w rite-back

Higher gas offtake qoq

Included S$12.5m of provision for doubtful debts for JAC. 50% of amount past due for 6 months.

Stable w ater offtake

Included S$3.5m of provision for debts for JAC.

Quaterly com m ents 3Q14 inc S$5.8m strategic fuel sale; pow er spark spread stable, -3%qoq

Energy- pow er

Energy- gas & steam

Gas number is low er. In the past customers used to take beyond TOP level, now they take just the TOP

Weaker spark spread; low er fuel price and roll-on renew al at low er rates. Banyan depreciation and higher interests kick in fully in 4Q14

3Q14 incl some short-term Gas expeted to be centralised utiltities stable contracts. 2014 gas offtake only at TOP level given additional supply of gas from LNG terminal. Prior to LNG, gas offtake w ere higher above TOP levels.

Energy total Water

New w ater capacities from 4Q14 incl. S$4m tax Banyan and one-off sale w rite-back

Water stable. 4Q14 incl. S$4m tax w riteback 4Q14 incl. S$4m tax On-site solid w aste w rite-back; Renew al stable. 4Q14 incl. of old w aste contracts S$4m tax w rite-back at better rates, recurring in nature and sustainable.

On-site solid w aste

Total

Steady yoy thanks to centralised utilities service offerings to offset -33% yoy spark spread in pow er. 3Q14 profit ex strategic fuel sale: S$55.5m or +19% qoq

Higher solid w aste fr renew al of contracts at higher rates and more w ood w aste.

Yoy up thanks to new w ater capacities fr Banyan, one-off sale and improved on-site solid w aste

SOURCES: CIMB, COMPANY REPORTS

Figure 5: SCI’s net profit by segment ex EI Net profit by segment (S$'m) Utilities Marine Engg Urban development Other business Corporate % contribution Utilities Marine Engg Urban development Other business Corporate

FY14 408 340 44 37 (29) 801

9M15 234 151 18 32 (19) 416

FY15F 316 223 22 41 (30) 572

FY16F 358 255 49 42 (32) 672

FY17F 421 243 49 43 (33) 722

51% 42% 6% 5% -4%

56% 36% 4% 8% -5%

55% 39% 4% 7% -5%

53% 38% 7% 6% -5%

58% 34% 7% 6% -5%

SOURCES: CIMB, COMPANY REPORTS

4

Conglomerate│Singapore│Equity research│October 29, 2015

Company Note Figure 6: Utilities net profit forecast by country (ex. EI) Net profit excluding EI SG -Energy (power) -Energy (gas and steam) -Water -Solid waste

2014 217.3 43.6 90.2 40.0 44.2

1H15 67.3 -10.0 35.1 18.8 23.4

2H15F 64.6 -0.7 22.5 17.0 25.8

2015F 131.9 -10.7 57.6 35.8 49.2

2016F 133.0 -28.0 68.8 37.8 54.4

2017F 130.7 -32.2 68.8 39.7 54.4

China Rest of Asia (ex. India) Middle East & Africa UK The Americas India Corp & others Total

71.0 63.7 41.7 23.6 11.3 0.0 -20.6 408.0

44.9 25.9 22.6 15.3 7.2 -5.2 -16.7 161.3

43.9 18.7 23.3 15.3 5.8 5.2 -22.4 154.3

88.8 44.6 45.9 30.6 13.0 0.0 -39.1 315.6

97.6 33.7 48.2 30.6 14.9 39.0 -39.1 357.9

107.4 34.0 50.6 30.6 17.2 89.6 -39.1 420.9

SOURCES: CIMB, COMPANY REPORTS

Figure 7: Utilities Singapore net profit would have been S$46.6m without the S$16m provision for JAC. USEP prices spiked in Jul-Aug due to shutdown of some gencos Sg net profit (RHS)

300

160

USEP Price (S$/MWh) Vesting Contract Price (S$/MW)

140

Crude Oil (RHS)

250

120 100

200

80 150

60 40

100 20 50 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

-

SOURCES: CIMB, EMCSG, MyPower, BLOOMBERG

Figure 8: Ave MW dispatched in TPCIL

Figure 9: Utilisation of TPCIL

MW 1,400

180% 160%

1,200

140%

Title: Source: Please fill in the values above to have them entered in your report

1,000

120% 800

100%

600

80%

SERIES(Data!$C$3,Data!$B$5:$B$260,Data!$C$5:$C$260,1) 60% 400

40% 200

20%

0

0%

SOURCES: CIMB, Southern Regional Load Despatch Centre

5

SOURCES: CIMB, Southern Regional Load Despatch Centre

Conglomerate│Singapore│Equity research│October 29, 2015

Company Note Figure 10: SOP valuation

Figure 11: Utilities is being valued at 6x CY17 P/E

Valuation basis Sembcorp Marine

At S$2.03 target price DCF (WACC 6%, LTG 1.7%)

Utilities Industrial parks and other biz At book value Total

Value ($m)

Per share (S$)

2,646

1.48

3,546

1.99

780 6,972

0.44 3.91

Implied market cap for Utilities SCI current market cap (less) Share of SembMarine market cap (less) Est. book value of industrial parks

Value (S$m) 6,446.0 (3,030.6) (840.0)

Implied market cap for Utilities FY17 Utilities PATMI Implied CY17 P/E for Utilities (x)

2,575.4 420.9 6.1

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

Implication of full liberalistoin of electricity Gradual liberalisation We are not surprised by the recent announcement by Mr S. Iswaran, Minister of Trade and Industry (Industry), of the full implementation of an open electricity market by 2H18. Currently, about 33,000 accounts comprising industrial / large corporates with an average consumption of S$450 or 2MW/hr qualify for such a scheme. With the full implementation of a contestable market, another 1.3m accounts (mainly households) will have the flexibility to choose to purchase electricity from the licensed retailers (Figure 14). The reduction of vesting contracts from 65% in 2004 to the current 25% (with a further reduction to 20% in 2016) has been seen as a gradual steps taken to prepare gencos for the full liberalization of the market.

Vesting contract recap Vesting contracts were introduced in 2004 to mitigate the exercise of market power to withhold their generation capacity to push up spot prices by the three main gencos – Tuas Power, Senoko and PowerSeraya. It commits the gencos to sell a specified amount of power (vesting contract level) at a specified price (vesting contract price). The allocation is made in proportion to the licensed generation capacity (before new planting decisions in 2001). The vesting contract price is determined on a detailed formula based on the long-run marginal cost of the most efficient generation technology, incorporating financing costs and fuel costs, among other components. Vesting contract prices have dropped 35% since 2013 in an environment of a lower interests costs and declining crude oil prices.. However, they are still priced higher than in the grid (USEP) and the contestable market, which draws reference from grid prices. Prices for the contestable market are not transparent and are based on bilateral agreements between gencos and users. With the shelter from high-margin vesting contracts, gencos – which typically have about 10-20% of their portfolios from the grid – were still able to bid at a low price to meet the minimum LNG offtake to avoid any penalty. This has resulted in a plunge in grid prices since 2013. Figure 12: Maximum eligible capacity for vesting contracts Maximum capacity eligible for vesting contracts Power Seraya Senoko Power Tuas Power Generation Sembcorp Cogen Keppel Merlimau Cogen Pacific Light

Figure 13: Vesting contract level gradually reduces to zero

MW 3,100 3,300 2,670

VC level

2004 65%

2007 55%

2014 40%

1H15 30%

2H15 25%

2016 20%

2H18 0%

785 470 800 SOURCES: CIMB, COMPANY REPORTS

6

SOURCES: CIMB, COMPANY REPORTS

Conglomerate│Singapore│Equity research│October 29, 2015

Company Note Figure 14: Market share (%) of major electricity retailers Retailer

2008 2009 2010 2011 2012 2013 2014

SP Services

36.5 36.6 35.5 36.7 37.0 36.1 33.3

Senoko Energy Supply

15.5 14.7 15.6 13.6 15.6 14.3 14.4

Keppel Electric

9.0 10.1

Figure 15: Market share (%) o by generating capacity

SP Services market share to split

9.4 11.4 11.2 16.3 13.2

%

2008

2009

2010

2011

2012

2013

2014

Senoko Energy

27.0

25.7

25.0

24.1

27.0

27.0

22.9

Keppel Merlimau

9.0

10.1

9.4

11.4

8.8

13.3

12.0

YTL PowerSeraya

24.5

26.3

26.7

26.5

25.9

23.2

18.4

Seraya Energy

18.4 19.1 19.1 15.7 16.9 16.6 14.0

Tuas Power

23.6

23.7

24.6

26.3

25.2

19.5

20.2

Tuas Power Supply

11.3 10.5 12.8 16.2 12.8 10.8 13.1

Sembcorp Cogen

10.4 -

9.4 -

9.6 -

9.2 -

9.7

9.3 -

10.8 -

8.5

Sembcorp Power

8.5

-

-

-

-

-

1.1 6.4

6.6

PacificLight Energy Hyflux Energy CPvt Energy Asia Diamond Energy

9.0 -

7.5 -

6.4 6.6 -

5.9

8.3

PacificLight Power

0.02

3.7

TP Utilities

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

One third

new

Others

5.1

5.3

6.2

5.5

3.8

1.6

new new

Half page SOURCES: CIMB, EMA

SOURCES: CIMB, ENA

Power prices could trend lower beyond 2018 Technically, a fully liberated electricity market may lead to higher grid prices, as gencos need to recover their margin loss from vesting contracts. However, with more players fighting for market share in a contestable market, we believe competition is likely to remain stiff. Gencos may be reluctant to raise prices as long as cash profits and interests costs are covered. Figure 16 shows the financial position of major gencos in Singapore, which suffered an average 30% yoy drop in 2014 earnings owing to capacity oversupply and lower spark spread. Note that interest cover is still healthy in general (3-8x), allowing the gencos ample headroom for downward pricing adjustments just to sustain market share. In our assumptions, we are expecting Singapore power profits to decline by 15% yoy from FY16-18 respectively. Figure 16: Earnings for major gencos in Singapore S$'m Revenue EBITDA Interest exp Net profit ex. goodwill impairment

EBITDA to Interest (x) Depreciation

YTL PowerSeraya 2014 2013 yoy 3,648 4,674 -22% 344 461 -25% -41 -39 5% 157 235 -33%

Tuas Power 2014 2013 yoy 2,761 2,758 0% 261 263 -1% -91 -95 32 96 -66%

Senoko 2014 3,329 350 -88 73

Energy 2013 yoy 3,894 -14% 478 -27% -159 121 -40%

SembCogen 2014 2013 yoy 892 983 -9% 88 147 -40% -8 -7 22% 37 93 -60%

8

12

3

3

4

3

11

22

111

133

130

115

173

157

35

28

Keppel Merlimau 2014 2013 yoy 864 987 -12% 193 180 7% -30 -17 79% 90 102 -12%

6

11

54

40

SOURCES: CIMB, COMPANY REPORTS

7

Conglomerate│Singapore│Equity research│October 29, 2015

BY THE NUMBERS

Share price info Share px perf. (%)

1M

3M

Relative

-3.9

4.1

Absolute

3.8

-4.5

Major shareholders Temasek Holdings

12M -19.0 -25.9 % held 49.5

P/BV vs ROE

12-mth Fwd FD Core P/E vs FD Core EPS

3.00

25.0%

2.50

20.8%

2.00

16.7%

1.50

12.5%

1.00

8.3%

0.50

4.2%

0.00 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

0.0%

Rolling P/BV (x) (lhs)

Growth 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

20.0% 12.5% 5.0% -2.5% -10.0% -17.5% -25.0% -32.5% -40.0%

12-mth Fwd Rolling FD Core P/E (x) (lhs)

ROE (rhs)

FD Core EPS Growth (rhs)

Profit & Loss (S$m) Total Net Revenues Gross Profit Operating EBITDA Depreciation And Amortisation Operating EBIT Financial Income/(Expense) Pretax Income/(Loss) from Assoc. Non-Operating Income/(Expense) Profit Before Tax (pre-EI) Exceptional Items Pre-tax Profit Taxation Exceptional Income - post-tax Profit After Tax Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit

Dec-13A 10,798 1,287 1,463 (303) 1,160 (101) 155 0 1,214 0 1,214 (117)

Dec-14A 10,895 1,415 1,436 (297) 1,139 (51) 158 0 1,246 0 1,246 (162)

Dec-15F 9,371 1,122 1,282 (357) 925 (93) 112 0 944 72 1,017 (160)

Dec-16F 11,004 1,433 1,585 (383) 1,202 (110) 132 0 1,224 0 1,224 (205)

Dec-17F 10,515 1,545 1,724 (399) 1,325 (124) 126 0 1,326 0 1,326 (220)

1,097 (277) 0

1,084 (283) 0

857 (213) 0

1,019 (347) 0

1,106 (384) 0

820 820 820

801 801 801

644 583 583

672 672 672

722 722 722

Cash Flow (S$m) EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received Tax Paid Cashflow From Operations Capex Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing Debt Raised/(repaid) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid Preferred Dividends Other Financing Cashflow Cash Flow From Financing Total Cash Generated Free Cashflow To Equity Free Cashflow To Firm

Dec-13A 1,463 141

Dec-14A 1,436

Dec-15F 1,282

Dec-16F 1,585

Dec-17F 1,724

(1,414)

(962)

(278)

83

(110) (205) 992 (1,000) 0 0 0 (1,000) 600 0 0 (242)

207 69 (12) (125) 1,743 (1,189) 41 (296) (9) (1,453) 392 3 (49) (268)

65 59 (119) 27 (1,306) 0 (249) (31) (1,587) 1,571 4 (32) (393)

(93) (160) 67 (1,200) 0 0 0 (1,200) 900 0 0 (232)

(109) (31) 260 683 397

(186) 963 (596) 12 (1,497)

0 668 (465) (233) (1,030)

0 358 350 592 113

(124) (220) 1,462 (800) 0 0 0 (800) 500 0 0 (260) 0 240 902 1,162 797

SOURCE: CIMB RESEARCH, COMPANY DATA

8

Conglomerate│Singapore│Equity research│October 29, 2015

BY THE NUMBERS

Balance Sheet (S$m) Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity Minority Interests Total Equity

Dec-13A 2,256 1,140 2,241 53 5,689 5,127 2,217 308 412 8,064 414

Dec-14A 1,661 1,200 3,205 64 6,130 7,725 2,413 391 517 11,046 1,086

Dec-15F 1,269 1,312 3,748 64 6,393 8,568 2,525 391 517 12,001 1,086

Dec-16F 1,619 1,541 4,402 64 7,625 9,186 2,657 391 517 12,751 1,086

Dec-17F 2,521 1,472 4,206 64 8,263 9,586 2,784 391 517 13,277 1,086

4,140 347 4,902 1,485

3,774 497 5,357 3,649

3,467 497 5,051 4,549

4,072 497 5,655 5,149

3,890 497 5,474 5,649

364 1,849 473 7,224 5,230 1,300 6,530

419 4,068 519 9,944 5,616 1,616 7,232

419 4,968 519 10,537 6,028 1,829 7,857

419 5,568 519 11,742 6,458 2,176 8,634

419 6,068 519 12,061 6,920 2,559 9,480

Dec-13A 6.0% 5.7% 13.6% 0.20 2.95 9.84 9.6% 37.2% 39.14 79.2 106.0 19.1% 13.7% 8.87%

Dec-14A 0.9% (1.9%) 13.2% (1.72) 3.14 16.24 13.0% 36.1% 39.21 104.8 104.7 19.7% 10.9% 7.28%

Dec-15F (14.0%) (10.7%) 13.7% (2.44) 3.38 9.03 15.7% 40.6% 48.93 153.8 118.8 8.7% 7.1% 4.84%

Dec-16F 17.4% 23.6% 14.4% (2.58) 3.62 9.92 16.8% 36.0% 47.44 155.8 109.1 9.4% 8.3% 5.73%

Dec-17F (4.5%) 8.8% 16.4% (2.36) 3.87 9.81 16.6% 36.0% 52.29 175.1 122.6 9.5% 8.4% 5.77%

Dec-13A 4.7% 24.7% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Dec-14A 1.1% 5.6% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Dec-15F 3.7% -17.8% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Dec-16F 3.7% 15.1% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Dec-17F 0.0% 0.0% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Key Ratios Revenue Growth Operating EBITDA Growth Operating EBITDA Margin Net Cash Per Share (S$) BVPS (S$) Gross Interest Cover Effective Tax Rate Net Dividend Payout Ratio Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) ROCE (%) Return On Average Assets

Key Drivers Rev. growth (%, main biz.) EBITDA mgns (%, main biz.) Rev. as % of total (main biz.) EBITDA as % of total (main biz.) Rev. growth (%, 2ndary biz.) EBITDA mgns (%, 2ndary biz.) Rev. as % of total (2ndary biz.) EBITDA as % of total (2ndary biz.) Rev. growth (%, tertiary biz.) EBITDA mgns (%, tertiary biz.) Rev.as % of total (tertiary biz.) EBITDA as % of total (tertiary biz.)

SOURCE: CIMB RESEARCH, COMPANY DATA

9

Conglomerate│Singapore│Equity research│October 29, 2015

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Conglomerate│Singapore│Equity research│October 29, 2015

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Conglomerate│Singapore│Equity research│October 29, 2015

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Such opinions are subject to change without notice and CIMBS has no obligation to update its opinion or the information in this research report. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient are unaffected. CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker and issuer including offering of Derivative Warrants Underlying securities of the following securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions. AAV, ADVANC, AMATA, ANAN, AOT, AP, ASP, BA, BANPU, BBL, BCH, BCP, BDMS, BEAUTY, BEC, BECL, BH, BJCHI, BLAND, BMCL, BTS, CBG, CENTEL, CK, CPALL, CPF, CPN, DELTA, DEMCO, DTAC, EARTH, EGCO, ERW, GFPT, GLOBAL, GLOW, GUNKUL, HANA, HMPRO, ICHI, INTUCH, IRPC, ITD, IVL, JAS, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LOXLEY, LPN, M, MAJOR, MC, MINT, MONO, NOK, PACE, PS, PSL, PTT, PTTEP, PTTGC, QH, RATCH, RCL, ROBINS, RS, S, SAMART, SAPPE, SAWAD, SCB, SCC, SF, SGP, SIRI, SOLAR, SPALI, SPCG, STEC, STPI, SVI, TCAP, THAI, THCOM, TICON, TISCO, TMB, TOP, TPIPL, TRC, TRUE, TTA, TTCL, TTW, TUF, U, UNIQ, UV, VGI, WHA Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result. Score Range: Description:

90 - 100 Excellent

80 - 89 Very Good

70 - 79 Good

Below 70 or N/A

No Survey Result

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates. United Kingdom: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) 13

Conglomerate│Singapore│Equity research│October 29, 2015

of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom, or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons. Where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “investment research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. Any such non-independent report must be considered as a marketing communication. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. CIMB Securities (USA) Inc does not make a market on the securities mentioned in the report. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. Distribution of stock ratings and investment banking clients for quarter ended on 30 September 2015 1528 companies under coverage for quarter ended on 30 September 2015 Rating Distribution (%)

Investment Banking clients (%)

Add

58.1%

6.0%

Hold

30.4%

3.5%

Reduce

10.9%

1.0%

Spitzer Chart for stock being researched ( 2 year data ) Sembcorp Industries (SCI SP) Price Close

3.86

4.02

4.30

4.57

5.85

6.14

5.99

6.24

5.30

Recommendations & Target Price

5.95 6.24

5.80

4.80 4.30 3.80 3.30 Add

2.80 Oct-13

Outperform

Feb-14

Hold

Neutral

Jul-14

Reduce

Underperform

Nov-14

Trading Buy

Mar-15

Trading sell

Not Rated

Jul-15

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2014. AAV – Very Good, ADVANC – Very Good, AEONTS – not available, AMATA - Good, ANAN – Very Good, AOT – Very Good, AP - Good, ASK – Very Good, ASP – Very Good, BANPU – Very Good , BAY – Very Good , BBL – Very Good, BCH – not available, BCP - Excellent, BEAUTY – Good, BEC - Good, BECL – Very Good, BGH - not available, BH - Good, BIGC - Very Good, BJC – Good, BLA – Very Good, BMCL - Very Good, BTS - Excellent, CCET – Good, CENTEL – Very Good, CHG – not available, CK – Very Good, CPALL – not available, CPF – Very Good, CPN - Excellent, DELTA - Very Good, DEMCO – Good, DTAC – Very Good, EA - Good, ECL – not available, EGCO - Excellent, GFPT - Very Good, GLOBAL - Good, GLOW - Good, GRAMMY - Excellent, HANA - Excellent, HEMRAJ – Very Good, HMPRO - Very Good, ICHI - not available, INTUCH - Excellent, ITD – Good, IVL - Excellent, JAS – not available, JUBILE – not available, KAMART – not available, KBANK - Excellent, KCE - Very Good, KGI – Good, KKP – Excellent, KTB - Excellent, KTC – Good, LH - Very Good, LPN – Very Good, M - not available, MAJOR - Good, MAKRO – Good, MBKET – Good, MC – Very Good, MCOT – Very Good, MEGA – Good, MINT - Excellent, OFM – Very Good, OISHI – Good, PS – Very Good, PSL - Excellent, PTT - Excellent, PTTEP - Excellent, PTTGC - Excellent, QH – Very Good, RATCH – Very Good, ROBINS – Very Good, RS – Very Good, SAMART - Excellent, SAPPE - not available, SAT – Excellent, SAWAD – not available, SC – Excellent, SCB Excellent, SCBLIF – Good, SCC – Very Good, SCCC - Good, SIM - Excellent, SIRI - Good, SPALI - Excellent, STA – Very Good, STEC - Good, SVI – Very Good, TASCO – Good, TCAP – Very Good, THAI – Very Good, THANI – Very Good, THCOM – Very Good, THRE – not available, THREL – Good, TICON – Good, TISCO - Excellent, TK – Very Good, TMB - Excellent, TOP - Excellent, TRUE – Very Good, TTW – Very Good, TUF - Good, VGI – Very Good, WORK – not available. 14

Conglomerate│Singapore│Equity research│October 29, 2015

CIMB Recommendation Framework Stock Ratings Definition: Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months. Sector Ratings Overweight Neutral Underweight

Definition: An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Overweight Neutral Underweight

Definition: An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

*Prior to December 2013 CIMB recommendation framework for stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange were based on a stock’s total return relative to the relevant benchmarks total return. Outperform: expected to exceed by 5% or more over the next 12 months. Neutral: expected to be within +/-5% over the next 12 months. Underperform: expected to be below by 5% or more over the next 12 months. Trading Buy: expected to exceed by 3% or more over the next 3 months. Trading Sell: expected to be below by 3% or more over the next 3 months. For stocks listed on Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Outperform: Expected positive total returns of 10% or more over the next 12 months. Neutral: Expected total returns of between -10% and +10% over the next 12 months. Underperform: Expected negative total returns of 10% or more over the next 12 months. Trading Buy: Expected positive total returns of 10% or more over the next 3 months. Trading Sell: Expected negative total returns of 10% or more over the next 3 months.

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