• Recent industry sources reported that Sembcorp Industries has bagged a 180MW wind power contract in SECI’s tranche XI tender; pricing similar to previous contracts.
• LNG price spike has minimal impact on Sembcorp Industries’s merchant power in Singapore and UK. But higher coal prices are a key risk in India though well guided.
• We also see little impact from power crunch in China as its coal power plant in Chongqing has been written down to zero equity. Maintain ADD.
• Sembcorp Industries is one of our top 3 midcap ESG picks for Singapore; it has clear target to up profit from sustainable solutions and renewable energy to 10GW by 2025.

Potential 180 MW of Wind Contract in India, Stable Pricing

• Industry sources reported that Sembcorp (SGX:U96)’s subsidiary Green Wind Infra Energy has secured bids in Solar Energy Corporation of India’s (SECI) tranche XI tender. Of the 1,200MW up for tender, Sembcorp Industries bagged 180MW, equivalent to ~11% of Sembcorp Industries’s current wind assets.
• Priced at 2.69 ₹/unit, SECI XI’s tariffs are comparable to SECI II and III at 2.64 ₹/unit and 2.44 ₹/unit respectively. We estimate net profit contributions of ~S$2m-3m p.a. from the contract. Though the contract is small, we take comfort in Sembcorp Industries’s progress in contract tenders. It plans to quadruple its renewable energy gross installed capacity from 2.6GW to 10GW by 2025, as announced at its investor day on 27 May.
• With this new contract, Sembcorp Industries’s renewable power generation assets would come up to ~3.5GW, including projects under development.

Spike in LNG Prices May Not Impact Gas Fired Plants

• About 58% of Sembcorp Industries’s conventional energy plants are up ~68% year-to-date. We believe there is also scope for fuel source optimisation given Sembcorp Industries’s position as a gas importer for both PNG and LNG.

Not Affected by Power Crunch in China; Target Price Based on 15x CY22F P/E

• Shortage in coal supply and toughening emissions standards in China have triggered widespread curbs on power usage. Recall that Sembcorp Industries took a S$212 impairment for its 49%-owned Chongqing Songzao Sembcorp through long-term supply contracts.

• Sembcorp Industries’s valuation is undemanding at 11x CY22F P/E, below peers’ 15x.
• Key potential re-rating catalyst: decarbonisation of conventional energy assets.
• Downside risks: unfavourable regulatory changes and significant impairment.
• Our target price is based on 15x CY22F P/E (Asian peers’ average).

Source: CGS-CIMB Research - 28 Sep 2021