FIRST The Analysts’ call
What will drive the company’s growth?
The short term may remain subdued
Sembcorp power plants lack spark
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new capacities come onstream, growing overseas contributions can offset this weakness on the home front, says Low Pei Han, research analyst at OCBC. NonSingapore utilities might even exceed Singapore utilities, which currently forms slightly more than half (54%) of utilities net profits, says DBS’ Tan. Analysts are hopeful about Sembcorp’s overseas power plants – the latest being the Unit 1 of the 1,320MW Thermal Powertech Corporation India Ltd (TPCIL) project in India, which is on track to come online before the end of the year. Sembcorp Industries will count on an increase in pool prices to protect its profitability in 2015 as it tries to wean Over-expansion by power prohigh-margin vesting contracts ducers in Singapore could lead to a sup- off in the next two years, says Lim Siew ply glut and crimp power prices. Khee, research analyst at CIMB. He expects pool prices to remain steady at S$135-140/MW for the first half of 2015 (1H15), with a possible slight 2014, accor ding to Tan Ai Teng, research increase by the end of that year. analyst at DBS, and this will likely erode For investors looking at Sembcorp electricity margins for Sembcorp Industries’ Industries, Lee paints a more pessimistic key utilities market. “Over-expansion by power producers in view: “It may require an oil price recovery Singapore could lead to a supply glut and or earnings surprise at Sembcorp Marine, crimp power prices,” concurs Lee Yue Jer, or reduced competition in the Singapore analyst at OSK-DMG. utilities space to offset the negative Sembcorp Industries’ utilities segment has sentiment, neither of which looks likely in not yet felt the earnings pinch as short-term the short term.” If there is a bright spot for the company, it contracts and new income from the Banyan is in the rising demand for infrastructure in cogen plant in Singapore propped up its emerging countries, which will pave the way bottom line in 2014, says Tan, although he for further expansion. Lee says rig renewals expressed doubt on whether these contracts can be sustained for long. and heightening deepwater exploration and Even as Sembcorp Industries faces production activities could boost rig orders pressure in its Singapore power spreads as for Sembcorp Marine. hile Sembcorp Industries might not be cowering before its rivals in the Singapore power sector, the increased aggressiveness of local competitors could make it break into a sweat, as analysts predict that domestic margins will tank in the coming months. Sembcorp Industries is crossing its fingers that rising overseas contributions can pick up the slack and that pool prices will rise to swing margin momentum in its favour. Around 30% more power capacities were planted in the industry in the second half of
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Tan Ai Teng – DBS Group Research Power spreads in Singapore are pressured by new capacities coming onstream. We expect overseas contributions to offset Singapore weakness. Going forward, we expect earnings of its non-Singapore utilities to exceed Singapore utilities, which currently forms about 54% of utilities net profits. Substantial landbank within urban development offers growth over medium to long term. SCI has close to 4,000 hectares of land available for sale. Of this, 64% is in Vietnam, 21% in China and 15% in Indonesia. Lee Yue Jer – OSK-DMG While we expect decent earnings growth from the new Indian power plants in FY15F, it may require an oil price recovery or earnings surprise at SembMarine, or reduced competition in the Singapore utilities space to offset the negative sentiment, neither of which looks likely in the short term. Demand for infrastructure in emerging countries will give rise to expansion opportunities. Rig renewals and heightening deepwater exploration and production activities could boost rig orders for the marine unit. Low Pei Han – OCBC Research Spark spreads in Singapore continued to remain under pressure. Competition in the Singapore power market ‘continues to be intense’ and is expected to affect the performance of the utilities business. However, overseas operations, which accounted for about half of utilities net profit in 9M14, are expected to grow. As for the urban development business, it is expected to deliver a comparable performance in 2014, underpinned by land sales in China.