Sembcorp Industries

Sembcorp Industries (SCI): strong set of FY11 results, above expectations.
Net income (excl exceptional income) was up 6.4% yoy to $809m (Street estimate $747m).
This was mainly boosted by Utilities, which saw net profit increase 32% yoy to $304m. The segment registered positive growth in all regions (Spore +24%, China +57%, Middle East & Africa +31%, UK +69%, The Americas +315%), except Rest of Asia/ Australia, which was down 24% yoy due to integration costs and purchase price allocation adjustments relating to an acquisition. UBS notes that fuel is a pass-through cost item on SCI’s key utilities contracts, so the group has been able to achieve stable profits through period s of fuel price volatility.

Mgt appears optimistic on its long term prospects, with several Utilities projects in the pipeline to grow recurring earnings base --- Salalah from 2Q12 onwards, Jurong Island from 3Q12 (IWWT plant) and 4Q13 (Banyan Cogen and a multi-utilities facility), Andhra Pradesh from 1Q14 and Fujairah from 2H14 (additional 30 MiGD desalination plant).

SCI proposed 17cts DPS, unchg yoy. This translates to a yield of 3.3% based on yday’s close at $5.14. The group remains in a net cash position.
SCI trades at an implied P/B of 0.9x.

Deutsche keeps at Buy, raises TP to $6.80 from $6.65.
UBS maintains Buy, raises TP to $6.10 from $5.55.
Citi keeps at Buy, raises TP to $5.83 from $4.72.
BOA-ML maintains Neutral, raises TP to $5.64.
Goldman maintains Neutral, raises TP to $4.85 from $4.65.