SIN : Sembcorp Industries: Utilities outperformed (BUY) : DMG

Utilities outperformed

Non-marine  earnings  beat  estimates. Sembcorp Industries (SCI)’s 1Q12 net
profit  rose  10%  YoY  to  S$177m,  and  accounted for 24% of our previous
estimate, driven by stronger contribution from the Utilities division (+61%
YoY).  Marine  earnings  were  lower  (-25% YoY) due to lower margins. 1Q12
outperformance  came from Singapore Utilities, which rose 30% QoQ, 61% YoY,
thanks to the additional gas sales, higher power spread and reserve margin.
We  raise  FY12-13F  EPS  estimates  by +3% and +5% respectively to reflect
higher-than-expected  earnings from the additional gas sales. Consequently,
we lift our TP marginally to S$6.30. Maintain BUY.

Utilities  now  the biggest contributor to Group’s bottomline. Contribution
from  the  Utilities  division to the Group’s net profit is at its highest,
accounting  from  56%  of  total  net profit compared 38% in FY11. 1Q12 net
profit  from  Utilities grew 12% QoQ, 61% YoY to S$99m. The stronger growth
was led by higher contribution in Singapore (+61% YoY) and the Rest of Asia
(+77%  YoY).  In Singapore, SCI gained from stronger gas sales, and reserve
margin.

Updates  on  Utilities  development:  (1) Projects on schedule. The Salalah
IWPP  in Oman is set to complete in May 2012. In Singapore, the IWTT plant,
Banyan  cogen  plant  and  the  multi-utilities  plant are 90%, 35% and 16%
completed  respectively.  SCI’s  power plant in India is 32% completed. (2)
SCI  previously  guided  that  its Singapore cogen plan is set to undergo a
major  maintenance  (six  to seven weeks downtime) program in 2012 but that
did not happen in the current quarter. (3) AES acquisition may be completed
in three months once they get approval from the Chinese government.

Valuation:  Raise TP to S$6.30. We value SCI using sum-of-the-parts (SOTP):
(1) DCF for Utilities division at 8% WACC; (2) stake in marine using our TP
for  Sembcorp Marine; (3) market value for Gallant Venture at S$0.29/share.
 
At our TP, the stock is valued at 15x FY12F P/E.



Createwealth8888:


Wait until neck so long for SCI to divest Gallant Venture.