• Energy 9M19 net profit up 5%
• But insufficient to offset drag from Marine
• Marine’s FY19 losses to be worse than FY18

Dragged by Marine

Sembcorp Industries (SCI) saw a 19% YoY fall in revenue and a 13% drop in net profit to S$71m in 3Q19, bringing 9M19 net profit to S$262m or just 66% of our full year estimate. This was mainly due to the lower than expected results in Marine, which reported a greater than expected net loss a few days ago. Sembcorp Marine had also warned that full year net loss would be greater than last year’s. With this, we lower our estimates to take into account the poorer than expected performance in the Marine division.

Singapore to See Maintenance Shutdowns in 2H19

In Singapore, completion of the sale of certain utilities facilities to ExxonMobil Asia Pacific is expected by the end of this year. Major maintenance shutdowns for the power generation assets in Singapore will also take place in 2H19.
 

Energy Division’s Net Profit Up 5% in 9M19

In the Energy division, net profit before exceptional items was 17% lower at S$84m in 3Q19, while net profit after exceptional items was 10% lower at S$81m. On a 9M19 basis, net profit was 5% higher at S$258m, demonstrating the relatively steady nature of the business.

Marine drag to continue

As mentioned in our earlier report, though SCI’s Energy and Urban Development segments are operating well, the Marine segment may pose a greater than expected drag on the group. A sustained recovery in new orders will take some time, and competition remains intense with margins compressed. Instead of full year losses projected to be similar in range to last year’s, they are now expected to be even worse than FY18. We update our estimates and our SOTP-based value for SCI drops from S$2.79 to S$2.51. HOLD.

Source: OCBC Research - 15 Nov 2019