Indian success expected to contribute to Singapore firm's growth

Singapore, May 20 (ANI): Singapore conglomerate Sembcorp Industries Limited (Sembcorp) reported a net profit of SGD 93 million (USD 68 million) for the first quarter of 2019. This is a 20 per cent improvement compared with the SGD 77 million achieved in the corresponding period of last year.

It's urban and energy businesses grew but its marine business was a drag on performance as a result of lower business volumes from its rigs and floaters and offshore platform projects. Net profit from the marine division fell to SGD 239,000 from SGD 2 million a year ago.

Despite better profit overall, revenue for the first three months of the year ending March 31st was down 10 per cent from a year ago, falling from SGD 2.8 billion to SGD 2.5 billion. The company follows the calendar year in its financial reporting.

 

The bright spot in its performance is the recovery of its Indian energy business under its Indian subsidiary Sembcorp Energy India Limited (SEIL).

SEIL reported a 12 per cent rise in operational profit for the first quarter to SGD 75 million from SGD 67 million in the same quarter a year ago due to better performance from its renewable energy business. However, net profit for the quarter was still in the red by SGD 7 million but was better off compared with the SGD 16 million loss a year ago. Turnover in the corresponding quarters was SGD 389 million in 2019 and SGD 441 million in 2018.

Analysts expect its Indian operations to continue driving increased profits with the recovery of its power business in India.

DBS Equity Research analyst Pei Hwa Ho stated in a research note that, "We believe in the long-term growth prospects of SCI's (Sembcorp) Energy arm, which has expanded its global footprint into key emerging markets - India, Bangladesh, Vietnam and Myanmar."

Ho continued, "the power market in India is recovering with current peak surplus expected to reverse by FY20 according to independent research house CRISIL, driving up tariffs. India remains a key growth driver, accounting for 15-20 per cent of earnings."

In his statement following the first quarter result announcement, Sembcorp group president and Chief Executive Officer Neil McGregor said, "In 1Q2019, our Energy business continued to perform well with improved contributions from India and the UK. We also grew our energy portfolio, with the completion of the 427-megawatt SirajganjUnit 4 power plant in Bangladesh in April 2019. We now have a global energy portfolio of over 12,400 megawatts, with 11,800 megawatts in operation and 650 megawatts of renewable underdevelopment."

DBS Equity Research's Ho expects Sembcorp's India operations to remain in positive territory in subsequent quarters and projecting it to attain SGD 70 million net profit for the full year in 2019. This will be driven by the peak renewable generation, which generated SGD 15-20 million profit a quarter during the same periods last year, and the full impact of resumption of SEIL Project 1 Unit 1, which would be seen in Q2.

SEIL Project 1 Unit 1 was shut down between January 1 to February 24 due to equipment inspection.

Moreover, the analyst also noted that the second long-term PPA (power purchase agreement) for SEIL Project 2 to supply 500megawatts of power to Andhra Pradesh for eight years is expected to commence in H2 2019.

Another source of optimism for Sembcorp is the ongoing US-China trade war which has seen an increase in business activity in Vietnam and growth in demand for power generation. It is also benefiting from relocation of more companies moving out of China into Vietnam, where Sembcorp Industries have a presence in industrial space and energy.

CEO McGregor told The Business Times (Singapore)last week that the trade row between the world's top two economies has not hit the conglomerate, as its main businesses in China, is in water and waste management services and these are essential services which are not affected by the trade dispute.

Sembcorp Industries Limited is listed on the main board of the Singapore Exchange and a component stock of the Straits Times Index and several MSCI indices. It is 49.5 per cent owned by Temasek Holdings, Singapore's state-owned investment company. Shares of Sembcorp closed SGD 2.53 for the week after touching a high of SGD 2.57 following the announcement of Q1 results. Its 12-month high is SGD 3.11 and low is SGD 2.43. Brokerages in Singapore has a "buy" call on the stock with an average 12-month target price for the stock of about SGD 3.43 with the most pessimistic house projecting a price of SGD 3.13.