Sembcorp Industries

Sembcorp Industries (SCI): 2Q13 results below street estimates; 2Q13 earnings of $165m (-13% y/y) took its 1H13 earnings to $342m (-7% y-o-y), making up 44% consensus FY13 estimates. The results also included a $8m gain from the sale of strategic fuel, but this was offset by a $25m fair value loss due to Gallant Venture's $15m allowance for doubtful debts in its China associate. SCI's utilities earnings rose 18% y/y owing to the $8m gain, primarily from selling strategic fuel in Singapore and higher earnings from the rest of Asean, Australia and India (17% y-o-y) and China (221% y-o-y). The surge in China came from newly-acquired assets from AES Corp and lower coal prices. SCI believes that the current level of earnings is sustainable. Its utilities unit accounted for 68% of 2Q13 net profit. Singapore power spread may weaken but overseas contribution to grow. SCI guided that the 1H12 blended power spread was >$50 but shrank by 15% y/y in 1H13. As more new power plants are expected to start commercial operations in 2H13 in Singapore, this could lead to weaker power spreads. However, overseas earnings are expected to grow. OSK DMG expect a stronger 2H13, buoyed by robust marine and urban development earnings. House maintain their BUY rating with TP of $5.85.