SINGAPORE (Sept 12): DBS Group Research is maintaining its “buy” recommendation on Sembcorp Industries (SCI) with a target price of $3.20.
In a Sept 12 report, analyst Ho Pei Hwa says, “SCI offers a unique value proposition as a defensive utilities business, and as a proxy to ride the cyclical O&M recovery.”
In 2018, the group’s India operations reversed out of the red and recorded profits of $47 million, as compared to a $58 million loss in 2017. Ho expects this trend to continue as India’s power market is recovering with current peak surplus is expected to reverse by FY20, driving up tariffs.
Furthermore, the group has also made forays into other emerging markets, such as Bangladesh, Vietnam and Myanmar.
Earlier today, the group announced that it will be partnering global financial institution UBS to set up solar-powered offices in Singapore. The two have signed a long-term solar energy deal.
See: Sembcorp in deal with UBS to set up solar-powered offices in Singapore
As part of the deal, Sembcorp will provide locally-sourced renewable power to support UBS Singapore’s operations over the next 10 years, through the sale of renewable energy attributes from surplus power generated by more than 15,000 offsite rooftop solar panels totalling 6.3 megawatt-peak (MWp) in capacity.
The partnership will run 25% of UBS’s annual consumption across all its offices in Singapore, where the amount of renewable energy consumed will replace close to 20 million kilogrammes of carbon emissions in 10 years.
“We believe in the long-term growth prospects of SCI’s Energy arm, which has expanded its global footprint into key emerging markets,” says Ho.
On the other hand, the analyst will be holding on to her belief of a potential merger between Keppel’s O&M arm and SMM in view of keener competition in the sector.
“We believe a spin-off of its marine arm could re-rate SCI’s undervalued utilities business that is being overshadowed by the cyclical marine business,” she adds.
Overall, both of SCI’s energy and marine businesses have seen their worst and are now set on a recovery path. But the stock’s ROE recovery is a critical factor for its re-rating.
As at 4.10pm, shares in SCI are trading at $2.19, or 0.6 times FY19 book with a dividend yield of 2.3%.
