Top Investment Picks: Sembcorp Industries, Seatrium, SingTel, Civmec, Venture Corp
Key Listed Companies Covered:
- Sembcorp Industries (SCI)
- Seatrium
- SingTel
- Venture Corp
- Civmec
Sembcorp Industries (SCI)
Recommendation: BUY
Target Price: S$7.47
Current Price: S$4.93
Return Potential: 51.5%
Investment Thesis:
Sembcorp Industries, despite challenges in 1H24 due to planned maintenance at its Singapore cogeneration plant, has shown resilience. The company reported better-than-expected net profit of S$540 million, up 2% year-on-year, showcasing its strong earnings potential. SCI’s Singapore energy portfolio remains strong, with net profit from gas services at S$339 million. This result was achieved despite a maintenance shutdown, highlighting the company’s robust performance.
With the completion of maintenance in 1H24 and another 2GW in renewables capacity expected to be added by the end of 2H24, SCI is well-positioned for strong future growth. Moreover, the acquisition of Gelex in Vietnam will further bolster earnings growth into 2025.
Valuation:
The target price of S$7.47 is based on a target P/E multiple of 12.8x, which is 1.5 standard deviations above SCI’s 2018-2024 average P/E of 8.2x, reflecting the company’s improving earnings outlook.
Share Price Catalysts:
- Completion of maintenance works in Singapore
- Expansion of renewables capacity
- Earnings growth driven by the Gelex acquisition
Seatrium
Recommendation: BUY
Target Price: S$2.31
Current Price: S$1.48
Return Potential: 56.1%
Investment Thesis:
Seatrium has demonstrated solid growth, with 1H24 revenue up 39% year-on-year, reaching over S$4 billion. The company’s net profit after tax (NPAT) and underlying NPAT (excluding one-off items) came in at S$36 million and S$115 million, respectively, marking significant improvements over the prior year’s losses. Seatrium has an optimistic outlook for future order wins, with strong potential contracts, such as the LOI conversion into a US$300-400 million firm contract and further contracts from TenneT.
The company also had a strong performance in its repairs and upgrades segment, handling 133 vessels in 1H24. With a net order book of S$26.1 billion and continued growth, Seatrium is well-positioned for future success.
Valuation:
The target price of S$2.31 is based on a P/B multiple of 1.15x, which aligns with the company’s five-year average and is applied to its 2025 book value.
Share Price Catalysts:
- Strong order book and potential for further contract wins
- Continued growth in the repairs and upgrades segment
SingTel
Recommendation: BUY
Target Price: S$3.58
Current Price: S$3.13
Return Potential: 14.4%
Investment Thesis:
SingTel is expected to significantly boost its return on invested capital (ROIC) from 9.3% in FY24 to low double digits by FY26, driven by market repair, cost management, and capitalising on growth trends. The company also aims to unlock shareholder value through capital recycling and expanding its regional data centre footprint. Additionally, SingTel’s strategic growth plan, “Singtel28,” outlines clear goals for improving the core business and further capital management.
SingTel has S$2 billion to S$3 billion in excess cash from capital recycling, providing ample room for value returns. We expect a positive shift in performance due to these strategic initiatives.
Valuation:
A DCF-based target price of S$3.58, with a 7% discount rate and 2.5% growth rate, is set to capture the potential uplift in shareholder value from these efforts.
Share Price Catalysts:
- Expansion of the data centre footprint
- Potential larger variable return dividends
Venture Corp
Recommendation: BUY
Target Price: S$16.17
Current Price: S$14.02
Return Potential: 15.3%
Investment Thesis:
Venture Corp is set for a stronger 2H24 performance, having successfully increased its revenue sequentially from 1Q24 to 2Q24. The company is engaged in multiple initiatives, including onboarding new customers, supporting geopolitical risk mitigation strategies for clients, and broadening its value-creation pathways. With healthy cash reserves of S$1.191 billion, Venture is well-equipped to outperform its peers, many of whom are in net debt positions.
Valuation:
The target price of S$16.17 is based on 0.5 standard deviations above its long-term mean P/E of 17x for 2025 earnings, reflecting the company’s potential for strong earnings recovery.
Share Price Catalysts:
- Onboarding of new clients
- Expansion of value-added services and offerings
Civmec
Recommendation: BUY
Target Price: S$1.32
Current Price: S$0.94
Return Potential: 40.4%
Investment Thesis:
Civmec is experiencing unprecedented demand across its operational sectors, including resources, energy, infrastructure, marine, and defence. The company’s order book stands at A$821 million, ensuring revenue continuity through 2029. With a tender pipeline valued at A$10 billion, Civmec is poised for continued growth and order book replenishment. The company is well-positioned to benefit from expanding client engagements and services.
Valuation:
Our target price of S$1.32 is based on 11x FY25 earnings, reflecting strong growth potential compared to its peers in the Australian market, which are trading at 17x FY25 earnings.
Share Price Catalysts:
- Robust pipeline of tender opportunities
- Diversified sector operations ensuring long-term growth
Brokerage: UOB Kay Hian
Date of Recommendation: September 2, 2024
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