Sembcorp Industries

Sembcorp Industries: DBSV maintains BUY with $6.00 TP (up from $5.80). House note that a planned maintenance shutdown of grp’s cogeneration plant this year is widely expected to curb Utilities growth. Estimate shutdown could result in $10-11m in lost income. However, believe the impact of this should be offset mostly by: 1) the full year impact of the SembGas expansion (+S$6m); 2) new waste collection sector (+S$0.8m); 3) sustained high power spreads and 4) better margins for some S$1.6b of new and renewed contracts secured in 2011. If without maintenance shutdown, Singapore Utilities should post 11% growth. Overseas projects growing and starting to pay back: Salalah started up full commercial operations end May. Conservatively, expect profits of $5m profit in 2012, rising to over $16m in 2013. China should also see stronger quarters ahead as the Shanghai Caojing power plant resumes operations and when the AES deal completes in 2H12. In the UK, power spreads in Teeside have moved up recently, suggesting a slightly better 2Q12 and beyond. Elsewhere, expectb 10% organic growth, underpinned by improving capacity utilization as demand for water and utilities grow. Overall, house note that SCI’s Utilities division is growing faster, yet remains cheaper than its peers. SCI’s Utilities trades at 6-7x FY12/13 PE, below its 8x historical mean. It deserves a re-rating closer to its regional peer average of 12x considering that 2010-2013 earnings CAGR (2010-2013) of 16% is ahead of the 13% expected by its peers.