In line performance with robust growth in Utilities. Disregarding the disappointing performance from Marine, FY12 results were largely within expectations. FY12 revenue and PATMI for Sembcorp Industries (SCI) came in at SGD10.2b (+13% YoY) and SGD753m (-7% YoY) respectively. Utilities earnings grew by 23% YoY in FY12, while Marine saw a 28% YoY dip in earnings for the same period. Final dividends of 15 cts/sh were declared, implying a yield of 2.9%. Recent sell-down following Marine’s disappointing results offers a good entry point. Maintain Buy with TP trimmed to SGD5.85 on lower marine valuations.

Utilities growth supported by new capacities. Despite planned shutdown of the Singapore cogen plant in 4Q12, revenue from Singapore held steady for the quarter due to additional gas sales. Looking ahead, we expect some softening of power prices in Singapore from increase in gas supply and competition from new power capacities. However, we still see steady annual earnings growth of about 6% for Utilities over FY13-15F. This would be supported by (1) New power capacities on Jurong Island coming onstream progressively in FY13, (2) India coal-fired power plant from 1H14 and (3) Additional desalination capacity in Fujairah from end-FY14.

Margins could trend marginally lower. 4Q12 net margins for Utilities came in lower QoQ at 5.8% although full-year margins were higher at 6.7%. New revenue streams and competition could likely lower future margins nearer to the 6% level, based on our estimates.

Marine segment will recover. We perceive the underperformance in Marine segment as temporal. We see earnings CAGR of 16% for the segment over the next 3 years, supported by its SGD13.6b orderbook. We also expect some margin upside surprise which could come from higher utilisation, better product mix or potential freeing up of contingencies taken in its conservative cost assumptions.

Twin engine of growth to drive re-rating. We expect the twin pillars of growth (Utilities and Marine) to drive a re-rating of SCI. Stripping out Marine segment valuations, Utilities is only trading at implied FY13F PER of 7.2x. Maintain Buy, with SOTP-based TP of SGD5.85.

Source: Maybank Kim Eng Research - 27 Feb 2013