Sembcorp Industries

Sembcorp Industries: 2Q14 results in line. Net profit rose 8.3% y/y to $179m, bringing 1H14 net profit to $363.9m (+7%), being 45% of full year street estimates. Turnover increased 1.4% to $2.5b, driven by 19% increase in Marine revenue to $1.3b, while utilities was weighed down 13% to $1.1b on the deconsolidation of Salalah and lower electricity sales in Singapore. At net profit level, Utilities’ bottom line fell 17% to $92.3m on lower contribution from Singapore’s Energy operations on lower spark spread. However, growth was buoyed by 5% increase in Marine’s net profit at $79.8m, and the absence of a $25.1m fair value loss from a then associated company, which shareholding has been diluted from 23.92% to 11.96%. Moving forward, management sees potential cuts to the current 40% vesting contract levels (used to mitigate pricing power of gencos) to 16%, which should further intensify Singapore utilities further. To offset this, SCI is targeting regional contributions in coming years. On capacity increases, over 3,000MW of new power capacity and 1.7m m3/day of new water capacity are scheduled to come onstream from 2014-16. Meanwhile, Deutsche feels that SCI’s price is fair, given Marine’s execution risks in Brazil and Singapore utilities competition. Interim DPS of 5¢ declared for the first time, but full year DPS forecast remains at 15¢. Sembcorp Industries trades at 1.8x P/B. Latest broker ratings: Maybank-KE maintains Hold with reduced TP of $5.03 (from $5.11) CIMB maintains Add with TP of $5.99 Credit Suisse maintains Neutral with TP of $5.40 Macquarie maintains Outperform with TP of $5.42 Deutsche maintains Hold with TP of $5.20