Sembcorp's expanded but undervalued utilities business an attraction

SINGAPORE (Sept 29): DBS Group Research is reiterating its “buy” call on Sembcorp Industries with a target price of $3.10, citing the group’s undervalued utilities business although it has expanded regionally.

In a Wednesday report, analyst Ho Pei Hwa notes that Sembcorp is trading close to book value that comprises largely its utilities business. This also implies investors would be getting SembMarine shares for almost “free.”

Sembcorp’s first power plant in Indian, Thermal Powertech Corporation India which is expected to make about $10 million in earnings per quarter, made a small loss of under $1 million in 1H16 due to repairs and maintenance requiring shutdown, notes Ho. However, the operation should turn profitable should capacity be ramped up to 86% as it has been contracted on long-term power purchase agreements since April, with the loss in 2Q16 being made up in 2H16.

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