Sembcorp Industries

Sembcorp Industries: 9M14 net profit of $560.5m (-6.1% y/y) missed estimates, making 70% of consensus forecast. 3Q14 net profit fell 22.7% to $196.6m, while revenue increased 3.2% to $3.1b on Singapore’s higher gas offtake and steam demand, partially offset by deconsolidation of Salalah and lower High Sulfur Fuel Oil prices. SCI increased its stake In Thermal Powertech Corporation India (TPCIL) from 49% to 65% in July, and as such consolidated its revenue this quarter. Meanwhile, spark spreads fell 3% q/q and 33% y/y on intense competition from new capacity. Marine’s revenue increased 3% to 1.7b on higher revenue recognition for rig building and offshore and conversion projects. Bottom line primarily weighed by a 34% drop in Utilities’ profit to $114m, but this was because of one offs last year, i.e. gains from Salalah IPO, offset by an impairment made on operations on Teesside in UK. Excluding these, the utilities business achieved a 10% bottom line growth. 2015 will remain challenging for Singapore Utilities, as vesting contracts fall from 40% to 30% in 1H and 25% in 2H, but that could be offset by overseas business. A bright spot is increased stake in TCPIL would aid in bottom line next year. That said, SCI continues to focus on executing and acquiring new overseas projects to diversify its exposure. It recently signed a conditional agreement to collaborate on a 1,620MW mine-mouth coal-fired power project in Chongqing, China. More significant growth could materialize only from 2016, with the proper ramp-up of a few other projects. BVPS of $3.02 translates to P/B of 1.5x Latest broker ratings: Maybank-KE maintains Hold with TP cut to $4.69 from $5.03 Deutsche maintains Hold with TP of $4.80 from $4.90