Sembcorp Industries reported net profit of S$22.8m (-84.6% YoY) in 4Q17, bringing full year net profit to S$230.8m (-41.6% YoY) vs. our estimate of S$269.9m and the street’s estimate of S$358.2m. Results were dragged by poorer performance in marine and one-off items in utilities. Excluding exceptionals worth about S$120.8m in utilities, the segment saw a 25% drop in core net profit to about S$260.8m in FY17.

SCI announced that it has initiated the process of an IPO of Sembcorp Energy India (no surprise to the market), and also plans to divest a number of peripheral utilities assets which is estimated to deliver cash proceeds of up to S$0.5b. The utilities business will also focus on growing three business lines: Gas & Power, Renewables & Environment, and Merchant & Retail.

A final dividend of S$0.02/share has been proposed, bringing full year dividend to S$0.05/share. Pending an analyst briefing, we maintain our BUY rating but put our fair value estimate of S$3.95 under review.

Source: OCBC Research - 23 Feb 2018