Sembcorp Industries

[millionairemind]

Published February 3, 2009

Sembcorp in Oman project funding talks
It's also understood to be reviewing costings of US$1b water and power project

By RONNIE LIM

SEMBCORP Industries is discussing with several financial institutions funding for the US$1 billion-plus Salalah independent water and power project (IWPP) in Oman, for which it was recently named as the 'preferred bidder' by the Omani authorities.

Furthermore, the Singapore group is understood to be relooking its earlier costings as the economic outlook has changed drastically since it bid for the project early last year, sources said.

Sembcorp's business stance - as evident in its bids for the Singapore generation companies sold by Temasek Holdings last year - remains that 'the numbers have to make commercial sense', the sources add.

Specialist publication MEED, or the Middle East Business Intelligence, reported that Sembcorp, which is bidding for the Salalah IWPP in partnership with Oman Investment Corp (OIC), is in talks with export credit agency China Export Import Bank for funding for the project.

Sembcorp is also said to be seeking other commercial banks to join the financing group in the face of a tough funding market.

This follows the expiry of an earlier US$800 million underwriting agreement with the UK's Standard Chartered Bank due to delays in the project, MEED said.

'If a fresh commitment to the project cannot be secured from Standard Chartered, or its new potential backers, Sembcorp could lose out on the deal,' it added.

MEED also cited a source as saying that 'the financial markets have completely changed since this underwriting was agreed, so getting a quick approval for new commitments will be difficult'.

Sembcorp, when contacted, declined comment.

Sembcorp/OIC was named by Oman as the preferred bidder last month from the three shortlisted groups for the Salalah project.

OIC is a private equity company whose shareholders include Gulf Investment Corp (50 per cent), the Oman government (10 per cent), National Investment Funds Company (35 per cent) and BankMuscat (5 per cent).

If they manage to complete the project financing, the Salalah IWPP will be Sembcorp's second such project in the Middle East after its earlier US$1.7 billion Fujairah IWPP in the United Arab Emirates.

The Salalah project comprises a 400-megawatt power station and a desalination plant producing 15 million gallons of water per day.

It aims to help meet the growing demand for water and power in the south of Oman.

[winston]

SembCorp's Q4 net profit falls 33.6% By LYNETTE KHOO

SembCorp Industries posted a 33.6 per cent fall in its net profit for the fourth quarter ended Dec 31, 2008 to $100.85 million dragged by losses from its associates.

Excluding exceptional items, its net profit would have been $127.77 million, 30.1 per cent lower than a year ago. Revenue for the quarter grew 6.6 per cent to $2.69 billion.

SembCorp's full year net profit fell 3.6 per cent to $507.06 million although revenue grew 15.2 per cent to $9.9 billion. Despite tough market conditions and challenges in the financial market, most businesses registered higher turnover.

During the year, the group recorded an exceptional loss of $26.9 million comprising of the group's share of Marine's forex losses from the unauthorised transactions.

SembCorp proposed a final tax exempt one-tier dividend of 11 cents per share for 2008.

[winston]

Not vested. From CIMB:-

• In line. 4Q08 core net profit of S$128m (-30% yoy) was in line with our estimate and Marine was the key profit growth driver (+32% yoy). SCI declared a lower FY08 DPS of 11 Scts for a payout of 36% (FY08: 48%).

• Projecting 5% yoy earnings drop for Utilities in 2009. 4Q08 Utilities profit of S$30m (-41%) was below our expected S$42m mainly due to one-offs, including prior years’ business development costs in Singapore (S$10m) and accounting standards differential adjustments for Phu My 3 (US$5m). Stripping out the one-offs, profit would have been in line. 4Q08 UK profit of S$15m (-20% qoq) was largely affected by the pound’s depreciation, which is ongoing. We are projecting a 5% yoy earnings contraction for Utilities in FY09 in view of our more cautious view on the pound, lower onsite service offtake and margin pressure from customers.

• Marine the key growth driver. We expect Marine to contribute 60% to group earnings in FY09, driven by the execution of its S$9bn order book.

• Dividend back to old days. We were not surprised by the dividend cut, given that SembMarine earlier reduced its payout from 75% to 53%, citing the need to preserve cash. We have adjusted SCI’s dividend payout from 50% to 33%, in line with its historical informal guidance (one-third of earnings).

• Strong balance sheet, sustainable operating cash flow. The group had a S$1.5bn net cash position. Excluding SembMarine’s net cash (S$1.8bn), Utilities’ net debt stood at S$244m (net gearing of less than 0.1). Despite the volatile environment and a potential earnings dip in FY09, we still see value in its Utilities business and project operating cash flow of about S$200m p.a on a sustainable basis.

• Earnings estimates trimmed by 1% for FY09 but raised by 6% for FY10 to account for lower earnings for Utilities and Industrial Parks in FY09. Our forecasts incorporate adjusted estimates for SembMarine. We also introduce FY11 estimates.

• Maintain Outperform; target price reduced to S$2.46 from S$2.72, still based on sum-of-the-parts valuation. Our target price takes into account the recent cut in our target price for SembMarine and the marked-to-market value of Gallant Venture.

[winston]

Not vested. From Kim Eng:-

Sembcorp Industries – 1Q09 results (Rohan Suppiah 64321455)
Previous day closing price: $3.09
Recommendation: Hold (reduced from Buy)
Target price: $3.03 (raised from S$2.70)

Marine the largest contributor
Sembcorp Industries achieved another steady quarter that were in line with our expectations, with net profit
rising 8.6% to S$133.6m versus 1Q08 on the back of flat turnover at S$2.1bn. The strength at Sembcorp
Marine (SMM) offset the anticipated weakness in utilities, with marine now accounting for 55% of group
earnings.

Utilities still feeling the effect of UK weakness
Utilities turnover dropped by 38% to S$696m, mainly due to lower fuel prices, which are a pass-through
item. Utilities PATMI fell by 16%. The UK business was down 73% with the expiry of a contract on more
favourable terms, and the depreciation of the GBP. Singapore utilities earnings grew 13%, with a tax
writeback of S$5.7m and a one-off fuel sale offsetting a provision made for upcoming unscheduled
maintenance.

Salalah still hindered by tight credit
With regards to its bid for the US$1bn Salalah independent water & power project (IWPP) project in Oman,
management said that it is still in the process of locking down financing. With tighter credit markets, it now
has to rope in more banks as individual banks have overall reduced their allocation in order to reduce its
risk exposure. However, SCI still seemed optimistic on securing the project.

Forecasts intact
We are leaving our FY09 forecasts unchanged, where we expect SCI to post 9.8% growth to S$557.0m.
We are forecasting steady earnings CAGR of 9% p.a. over the next three years, with earnings expected to
decelerate in FY11 due to the marine business. Utilities are expected to perform in line with muted GDP
growth, while we are not factoring any significant project wins at this point.

Target price raised to S$3.03, but reduced to a HoldWe are adjusting our SOTP price target upwards from $2.70 to $3.03, in line with SMM and Gallant Ventures’ price rises. However, we are reducing our recommendation to a Hold, as SCI’s share price is currently in line with this. We do not expect any significant near term catalysts, with a potential win at Salalah possibly to come at the expense of margins.

[winston]

SEMBCORP INDUSTRIES - Nomura raised its price target on SembCorp Industries on Monday to S$3.65 from S$2.65, noting that with planned expansion at Singapore, UK and China utilities facilities, it believes the industrial group's earnings will rebound next year. The research house maintained its "buy" rating.

[winston]

SEMBCORP INDUSTRIES - Sembcorp Industries on Thursday signed an agreement to test-bed a new wastewater treatment and water reclamation system. [ID:nSN6P30491] The firm also said it was exploring ways to expand its water business in Shenyang city in China's Liaoning province.

[winston]

Not Vested. From UOBKH:-

Valuation/Recommendation

Fair price raised by 6% to S$3.50. Our fair value (sum-of-the-parts valuation of S$3.87 less 10% holding company discount) factors in our revised fair price of S$3.20 for SMM and we roll forward our valuation for the utilities segment by a year.

The utilities business is now valued at 9x FY11F net profit (previously 10x FY10F earnings). For exposure to SMM’s offshore oil & gas business, SCI appears to offer a better value.

[winston]

Not vested. From Kim Eng:-

SOTP target price at $3.48, maintain HOLD

We are tweaking our FY09 forecasts up by 1.1% to $564m, as SCI expects contributions from land sales in its Vietnam industrial park to be recorded in 4Q.

Overall, earnings will mainly be driven by Marine, while Utilities are expected to grow steadily over the next 3 years.

Our SOTP price target stands at $3.48, and we maintain HOLD.

[winston]

Sembcorp Industries - Singapore's Sembcorp Industries has signed a joint venture deal with Oman Investment Corp to build a water and power project worth $1 billion.

Source: Reuters

[grandmaster89]

Thinking of investing some $$$ in this company. I get to enjoy the upside from Sembmarine winning any oil rig contracts, while riding on the green wave in its environment business and the stability of its utility business.