Analysts have remained positive on Sembcorp Industries U96 (Sembcorp) after the group’s results for the FY2023 ended Dec 31, 2023, stood in line with the estimates of the consensus.
Sembcorp’s full-year revenue, ebitda and reported profit came at 97%, 103% and 100% of Bloomberg’s consensus. For the period, earnings grew by 11% y-o-y to $942 million while net profit before extraordinary items (EI) rose by 38% y-o-y to $1.02 billion. Total turnover or revenue fell by 10% y-o-y to $7.04 billion.
Maybank Securities has kept its “buy” call and target price of $6.30 as Sembcorp sees a strong finish to its fiscal year.
Analyst Krishna Guha, who recently took over coverage of the group, notes that Sembcorp’s FY2023 net profit stood “marginally ahead” of Maybank’s estimates. However, the group’s near-term earnings have likely seen its peak with the receding tailwind of elevated power prices, he adds in his Feb 20 report.
While net profit before EI for conventional energy increased by 30% y-o-y to $809 million, the second half of the year saw a slowdown in revenue as power prices came off the peaks sequentially.
At the same time, the green transition theme is “intact” with a de-risked revenue profile from lower merchant risk and long-term power purchase agreements (PPAs), notes Guha.
During the year, Sembcorp saw continued growth for its renewable segment with net profit up by 42% y-o-y to $200 million. This was driven by contributions from acquisitions in China and India as well as higher contributions from energy storage and solar operations in Singapore.
The analyst is forecasting Sembcorp’s FY2024 profit to drop by 12% y-o-y due to lower power prices, termination of Vietnam power plant and maintenance downtime which offsets higher revenue contributions from renewable projects that should become operational within FY2024.
He also forecasts Sembcorp’s overall return on invested capital (ROIC) from FY2023 to FY2025 to increase to 10% from 5.0% previously. “Overseas projects, when fully ramped up, may help to expand return on equity (ROE),” he writes.
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The team at DBS Group Research has also kept its “buy” call and target price of $7.15 with the group’s FY2023 core profit of $1 billion at 5% above its full-year estimate.
“The outperformance was attributable to stronger-than-expected gas & related services, especially Singapore power,” says the team in its Feb 21 report.
Meanwhile, Sembcorp’s renewable performance was also “commendable” with a contribution of some 20% to its overall profit for the year.
That said, while the spark spread for Singapore power stood ahead of expectations, the team has kept its FY2024 estimate largely intact due to the impact from the 60-day maintenance shutdown of Singapore power plants in 1H2024.
“We believe spark spread will stay elevated into 2025 in view of the high contracted capacity and thus are raising our FY2025 net profit forecasts by 4%,” says the team. At the same time, like Maybank’s Guha, the DBS team also believes that 2H2023 is a “good reference point” for normalised Singapore power earnings ahead.
“Looking ahead, we believe Sembcorp could deliver [a] five-year compound annual growth rate (CAGR) of [around] 5% from FY2023 profit of $950 million, based on targets set in their investor day in November 2023,” says DBS.
“Renewable could grow at 25% CAGR if achieving 25GW target by 2028, implying $500 million profit. Gas and related earnings could normalise to $550 million - $600 million by 2028 on spark spread normalisation. There could be upside to this as Sakra plant is assumed to run as backup capacity,” it adds.
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PhillipCapital analyst Peggy Mak is keeping her "accumulate" call and target price of $6 on Sembcorp with its FY2023 net profit 3.3% higher than her estimates.
However, she expects the group's FY2024 net profit to fall due to the 60-day maintenance at the Singapore power plant and the handover of the Vietnam Phu My 3 power plant in February. The impact of the closure in Singapore is expected to be at $66 million.
"We maintain our earnings estimates for FY2024, which are expected to fall 11.9% y-o-y due to the maintenance shutdown at its power plant for two months and the absence of contributions from the Vietnam power plant," says Mak in her Feb 22 report.
"Contributions from renewables are expected to account for a larger share of net profit, from 21.2% in FY2023 to 31.8% in FY2025. We expect integrated urban solutions to remain muted, but there is no risk of writedown in the value of the property assets," she adds.
As at 11.06am, shares in Sembcorp are trading 29 cents lower or 4.99% down at $5.52.
