Sembcorp Industries

Sembcorp Industries: 1Q12 results positive surprise, despite disappointment from SMM. Revenue was $2.4b, +21% yoy. Net profit was $177m, +11% yoy, despite the 25% yoy earnings decline in Marine. Utilities was the key driver, with earnings contribution rising sharply to 56% of group net income from 39% in 1Q11. Utilities saw strength across its key markets, with Spore net income +61% yoy to $65m (additional gas sales, higher power spreads and reserve margin), Rest of Asia & Australia +77% to $15.9m, Middle East & Africa +34% to $5.6m. Even the previously weak UK operations was +38% to $7.4m. China was down 3% to S$4.6m, but that was largely due to maintenance activity at its plant. Morgan Stanley keeps at Overweight, says SCI’s stub (ex-O&M) is undervalued at 7x P/E and could see a re-rating. UBS keeps at Buy, raises TP to $6.35 from $6.10. Deutsche keeps at Buy with new TP of $6.65. Says long term prospects appear healthy with Salalah contributing from 2Q12, Jurong Island from 3Q12 (IWWT plant) and 4Q13 (Banyan Cogen and a multi-utilities facility), Andhra Pradesh from 1H14, and Fujairah from 2H14 (additional 30 MiGD desalination plant).