• Results within expectations
• TPCIL to breakeven this year
• Seeking emerging market growth

3Q15 results weighed by marine

Sembcorp Industries reported a 21.8% YoY drop in revenue to S$2.4b and a 37.8% fall in net profit to S$122.3m in 3Q15, such that 9M15 core net profit accounted for 72% of our full year recurring net profit estimate, and was generally in line with expectations. Net income from the utilities segment was down 21% YoY to S$90.2m, while marine unsurprisingly saw a 75% fall in net profit to S$19.7m in 3Q15.

A S$23.2m allowance for doubtful debts was made in the quarter, of which a significant amount is related to Jurong Aromatics Corporation. Management is hopeful that the JAC amount will be recovered eventually, given that utilities is a necessity for the plant, should it resume operations.

Updates on utilities

In 3Q15, the Indian TPCIL plant saw a loss of S$12.3m, which is not surprising given that the plant is within its first year of operations. Recall that management had earlier guided that the Indian plant should be close to breakeven this year, as the first unit started operations in Apr while the second unit started in mid Sep.

In Singapore, after relatively low power spreads in 1Q and 2Q this year, 3Q finally saw a spike in spreads of about 15-20%. However, management is more circumspect for 4Q, expecting the last quarter to see spreads that are similar to 1H15.

Staying steadfast and expanding operations

SCI has been expanding its operations steadily over the years in both the utilities and urban development segments, and we are positive on the long-term prospects of the group, given its good track record and sensible strategy of pursuing emerging market growth.

We roll forward our valuations to FY16, and update our sum-of-parts valuation with a lower fair value estimate for Sembcorp Marine and the values of other non-listed entities, such that our fair value estimate for Sembcorp Industries is tweaked from S$4.03 to S$4.02. Maintain BUY.

Source: OCBC Research - 30 Oct 2015