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Regional Equity Strategy Q4 2007
Stock Profile: SembCorp Industries
BUY S$6.00 STI : 3,476.31
Price Target : 12-month S$ 7.50
Potential Catalyst: Contract wins
ANALYST
Jesvinder Sandhu +65 6398 7965
jesvinder@dbsvickers.com
FORECASTS AND VALUATION
FY Dec (S$ m) 2005A 2006A 2007F 2008F
Turnover 7,409.2 8,107.1 8,114.8 9,291.6
EBITDA 589.4 536.0 818.9 934.8
Pre-tax Profit 507.6 1,148.9 795.7 981.6
Net Profit 303.3 1,029.8 465.6 546.4
Net Pft (Pre Ex.) 278.5 379.6 465.6 546.4
EPS (S cts) 17.1 59.0 26.7 31.3
EPS Pre Ex. (S cts) 15.7 21.7 26.7 31.3
EPS Gth Pre Ex (%) 23 39 23 17
Diluted EPS (S cts) 16.9 57.3 25.9 30.4
Net DPS (S cts) 5.2 43.5 13.3 15.6
BV Per Share (S cts) 114.5 161.0 144.1 162.1
PE (X) 35.2 10.2 22.5 19.2
PE Pre Ex. (X) 38.3 27.6 22.5 19.2
P/Cash Flow (X) 26.1 9.7 21.6 21.1
EV/EBITDA (X) 19.2 21.0 14.5 12.9
Net Div Yield (%) 0.9 7.3 2.2 2.6
P/BV (X) 5.2 3.7 4.2 3.7
Net Debt/Equity (X) CASH 0.0 0.2 0.1
ROAE (%) 15.3 42.8 17.5 20.4
SHARE PRICE CHART
S$
6.80
6.30
5.80
5.30
4.80
4.30
3.80
3.30
2.80
Sep-06 Nov-06 Feb-07 Apr-07 Jul-07 Sep-07
SembCorp Industries
100-Day M A
AT A GLANCE
Issued Capital (m shrs) 1,782
Mkt. Cap (S$m/US$m) 10,694 / 7,051
Major Shareholders
Temasek Holdings Pte Ltd (%) 49.0
Lloyd George Investment (%) 4.9
Free Float (%) 46.1
Avg. Daily Vol.(‘000) 4,804
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (S cts): 2007: 28.1 2008: 32.2
Variance vs Cons (%): 2007: (5.1) 2008: (2.8)
Sector : Industrials
Bloomberg/Reuters Code: SCI SP/SCIL.SI
Principal Business: Focus on Integrated Utilities and Energy,
Marine Engineering, Environmental Engineering, Logistics &
Engineering & Construction Services.
SembCorp Industries
Growth from Marine and Utilities
Story: Prospects for SCI’s core divisions of Utilities and
Marine are both positive. Utilities have defensive qualities
while the marine division is riding the cyclical upswing.
Point: Utilities will continue to see growth from
Singapore and UK and increasing contributions from its
overseas investments. Marine is expected to continue to do
well supported by its order book of S$8.6bn. We expect the
order flow momentum to continue with the focus on
semisubmersibles and floating production units as the
industry explores deepwater drilling and moves into oil
production mode.
Relevance: Maintain Buy with a target price of S$7.50
based on RNAV.
Outlook on Utilities. As at 1H07, utilities accounted for 55% of
Group net profit. SCI has set in place the building blocks to
ensure long term growth sustainability of its businesses both in
Singapore, UK and the region. In Singapore, the outlook is strong
with the opportunities to supply utilities and gas supply to new
petrochemical cracker plants and downstream companies and
from new investments in Tembusu/Banyan. The operations in the
UK is expected to continue to perform strongly, underpinned by
favourable supply contracts secured until end 2007/1Q08. In
addition, the 30MW biomass power plant Wilton 10, one of UK’s
largest biomass renewable energy projects, is scheduled to come
onstream in 2H07. China and Middle East operations will not be
significant contributors just yet. The expansion in Nanjing,
Shanghai and Zhangjiagang are on track. Fujairah I, an
independent water and power plant in UAE, in which it has a
40% stake will start to contribute from 2009. The Enviro division
is constructing a 800tpd pre-disposal facility in Singapore with
operations to commence in 2H07.
Strong order flow momentum from SMM. YTD order wins
now amount to S$4.8bn and we expect it to hit S$5bn for this
year. Current order book is S$8.6bn, providing good visibility to
earnings. While the momentum for jackup orders could slow, we
expect a pick up in orders for semis and floating production
systems especially FPSOs. SMM is well placed to leverage on this
through its acquisition of SMOE last year. We expect strong
earnings growth of 32% and 40% over FY07-08. As a
percentage of Group revenue, marine is expected to account for
44% of net earnings in FY07 and 52% in FY08 as earnings from
Marine are rising faster.
Buy, TP S$7.50. Target price for SCI is based on RNAV valuation.
Refer to important disclosures at the end of this report
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