Results broadly in line with our and consensus expectations. Full-year DPS of SGD 17.0 cents proposed.

Utilities net profit dipped in 4Q13 due to lower electricity sales and lower High Sulphur Fuel Oil (HSFO) prices.

Maintain Hold, SOTP-based TP of SGD5.51.

No major surprises in 4Q13 results

Sembcorp Industries’ (SCI) 4Q13 PATMI of SGD223.8m (+9.3% YoY, -12.0% QoQ) met expectations, after stripping out the SGD39.6m tax credit (mainly from the Marine segment). Utilities net profit dipped in 4Q13 (-6.2% YoY, -55.8% QoQ) due to: 1) lower electricity sales and HSFO prices in Singapore, and 2) scheduled maintenance in two of its China plants. SCI declared a final DPS of 17 cents.

What’s Our View

SCI communicated a shift in its Utilities business strategy to one skewed towards the developer model as opposed to an owner-operator model. SCI intends to take a higher stake upfront as a developer in future projects and pare down its stake after project completion. We believe that this would allow it reap a portion of return upfront while still participate in long-term recurring income of utilities project (eg. the Sembcorp Salalah IPO)

SCI did not provide an indication of the extent of domestic power spread decline for 4Q13 (which dipped ~19% YoY in 3Q13), but suggested that some players are contemplating to scale back on capacity expansion to defend industry profitability. This could provide some relief to an expected decline in power prices in FY14E. Nevertheless, we believe that the key upside for the SCI still lies in its pipeline of Utilities development projects.

Our forecasts and SOTP-based TP are left largely unchanged. Maintain Hold on concerns on power spread decline in Singapore..

Source: Maybank Kim Eng Research - 28 Feb 2014