The research team at OCBC Investment Research has kept “buy” on Sembcorp Industries U96 as it sees positive structural demand drivers for the group.
In its report dated June 3, the team sees Sembcorp benefitting from tight power markets and growth opportunities stemming from the demand for artificial intelligence (AI) and computing.
The team points out that there has been a growing number of new data centre announcements in Asean with more potential power demand being underwritten as these data centres ramp up. For instance, Google announced that it will invest US$2 billion ($2.7 billion) to develop a data centre and cloud hub in Selangor, Malaysia. Singapore has also announced a Green Data Centre Roadmap to provide at least 300MW of potential capacity in the near-term, note the OCBC team.
Sembcorp’s growing Vietnam Singapore Industrial Parks portfolio is also a plus, in the team’s view. The group’s presence in Vietnam’s northern, central and southern regions, which have seen increasing government spending on infrastructure such as highways, ports and airports to improve accessibility. The accessibility has, in turn, led to investments and trade from foreign-invested enterprises, the team adds.
“Including the new projects, Sembcorp has participated in the development of 18 VSIPs [or Vietnam Singapore Industrial Parks] with total licensed land area of 11,588 hectares,” the team writes.
In addition, the team is looking closer at the group’s capital recycling efforts such as partial stake sales and the listing of assets in yield vehicles.
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“As mentioned in our earlier report, the group plans to invest $14 billion over 2023-2028 and fund half of this growth via operating cash flow, a fifth by capital recycling and partnerships, and a third by balance sheet leverage,” says the OCBC team.
“The success of this strategy has implications on whether the company may need to turn to capital raising to fund its continued transformation and next stage of growth,” it adds.
Despite the positives, the team has lowered its fair value estimate to $6.73 from $6.83 as it updates its estimates.
As at 3.04pm, shares in Sembcorp are trading 1 cent higher or 0.2% up at $5.10.
