Date: September 18, 2024
Broker: CGS International Securities
Overview of Sembcorp Industries
Sembcorp Industries (SCI) is a leading energy and urban development company based in Singapore. The company has a diversified portfolio with a focus on providing sustainable solutions, particularly in the renewable energy sector. As of the report date, the company has a market capitalization of S$9,252 million (US$7,145 million), and its shares are actively traded on the Singapore Stock Exchange under the ticker SCI SP.
Recent Strategic Acquisition
In September 2024, Sembcorp Industries announced a major acquisition, signing a sale and purchase agreement with ENGIE Global Development B.V. to acquire its 30% stake in Senoko Energy. Senoko is a significant electricity supplier in Singapore, holding a 15.4% market share in power generation. This acquisition will increase SCI’s market share in Singapore’s energy sector to approximately 25%, enhancing its position as a dominant player in the market.
The financial details of the deal remain undisclosed, but the acquisition is expected to be completed by the fourth quarter of 2024, pending regulatory approvals from the Energy Market Authority (EMA) of Singapore. Senoko’s net assets as of end-2023 stood at S$1.95 billion, and the acquisition valuation is estimated to range from S$260 million to S$370 million, based on Senoko’s profits in FY22.
Financial Performance
Sembcorp Industries has shown robust financial performance in recent years. For FY23, SCI reported a net profit of S$1,020 million, representing a significant increase from S$704 million in FY22. The company expects its net profit to remain stable at S$1,005 million in FY24, with growth prospects driven by its renewable energy (RE) business.
Key financial highlights (FY22A to FY26F):
- Revenue: S$7,825 million (FY22A), projected to decrease slightly to S$6,589 million by FY24F
- Operating EBITDA: S$1,262 million (FY22A), rising to S$1,709 million in FY24F
- Dividend Yield: 2.50% (FY23A), expected to rise to 2.71% in FY24F
- Net gearing: Expected to improve from 133% in FY23 to 103% in FY24
Renewable Energy Expansion
Sembcorp Industries continues to position itself as a leader in renewable energy. The company has set a target to achieve 25GW of gross renewable energy capacity by 2028, up from its current capacity of 8.7GW. The company is focused on expanding its renewable energy footprint in China, India, and the Middle East. With this growth strategy, SCI aims to achieve a 25% compound annual growth rate (CAGR) in net profit over the period from FY22 to FY28.
ESG Commitment
Sembcorp Industries is making significant strides in environmental, social, and governance (ESG) initiatives. The company received a C+ LSEG ESG combined score in 2022 and an AA rating from MSCI for its commitment to sustainability. One of its key goals is to reduce emissions intensity to 0.15 tCO2e/MWh by 2028, which will be a significant reduction from its 2023 forecasted levels of 0.30 tCO2e/MWh.
SCI has already achieved its 2025 emissions intensity target of 0.40 tCO2e/MWh (Scopes 1 and 2) and aims to further reduce its absolute emissions to 2.7 million tonnes of CO2 equivalent by 2030. These efforts align with the company’s long-term goal of achieving net-zero emissions by 2050.
Risks and Key Catalysts
While Sembcorp Industries has demonstrated strong growth potential, the company faces several risks, including regulatory changes and potential curtailment in China, where it has significant renewable energy investments. On the other hand, key catalysts for SCI’s continued success include the accelerated pace of acquisitions in renewable energy, securing new RE contracts, and recycling of mature renewable energy assets to fund further growth.
Shareholder Information
Sembcorp Industries’ largest shareholder is Temasek Holdings, with a 49.5% stake in the company. The company has a free float of 50%, and its shares are actively traded, with an average daily turnover of US$12.25 million. The stock is currently rated as “Add” by CGS International Securities, with a target price of S$7.32, offering a 41% upside from the current price of S$5.19 as of September 18, 2024.
Conclusion
Sembcorp Industries is well-positioned for future growth, driven by its strategic acquisitions and expansion into renewable energy. The company’s strong financials, commitment to sustainability, and focus on increasing its market share in Singapore’s energy sector highlight its potential for continued success in the coming years.
