• Steady results
• Utilities to see capacity growth
• Reviving property unit

1Q14 results in line

Sembcorp Industries (SCI) posted an 11.8% YoY rise in revenue to S$2.63b and a 4.5% YoY increase in net profit to S$184.8m in 1Q14, accounting for 22% and 23% of our full year estimates, respectively. There were no material one-offs in the last quarter and the results were within our expectations. Net profit from the utilities business rose 3% to S$91.6m, while marine saw a similar rise in percentage to S$74.3m in the quarter. Urban development was the outperformer, with a 192% rise in net profit to S$19.5m, due to strong contributions from the Nanjing Eco Hitech project in China.

Increasing capacity over the next three years

Competition in the Singapore power market “continues to be intense”, but management points out that power generation is just one of several income components in Singapore, with the rest coming from the co-gen plant and supply of on-site facilities like steam and piped natural gas. Overall, the group expects the underlying core business of its utilities segment to deliver a steady performance compared to last year. Going forward, SCI’s pipeline of projects is expected to increase its power capacity by more than 70% and its water and wastewater treatment capacity by more than 20% over the next three years, enhancing recurring earnings.

Awaiting more details on property “revival”

We await more details on the “revival” of SCI’s property development subsidiary, which we see synergies with the industrial park business. Though no plans have been officially approved yet, we could start seeing some developments as early as 2H14. Meanwhile, with the lowering of SembMarine’s fair value (from S$5.26 to S$4.90), our SOTP-based fair value also slips from S$6.42 to S$6.17. Maintain BUY.

Source: OCBC Research - 7 May 2014