Sembcorp Industries - DBS Research 2024-02-21: A Steady 2H23; Igniting The Renewable Spark

• Sembcorp Industries (SGX:U96)’s FY23 core profit (excluding SEIL divestment loss of S$78m) of S$1bn is 5% above our estimate. The outperformance was attributable to stronger-than-expected gas & related services, especially Singapore power.
• - Read this at SGinvestors.io -

Gas * related services were the star performer.

• Gas segment contributed S$809m (+34% y-o-y) in net profit in FY23, making up ~72% of group profit. Of this, ~80% came from the Singapore power business.
• The steady 2H23 gas earnings, down by a slight 15% h-o-h to S$374m, despite the much steeper decline of 45% in the USEP, vindicates Sembcorp management’s guidance of more predictable and steady power earnings ahead, with measures in place to mitigate merchant risk. This includes:
  1. - Read this at SGinvestors.io -
  2. SingTel (10-year PPA @ S$180m pa from 1 Oct, we estimate that it takes up around 90-100MW capacity); and
  3. ST Telemedia (8-10-year PPAs for up to 100MW).

Effective hedges against gas price fluctuations, especially contracts with no cost pass-through.

We believe 2H23 is a good reference point for normalised Singapore power earnings ahead.

Plant maintenance and retirement.

• Read more at SGinvestors.io.

Pei Hwa HO DBS Group Research | https://www.dbs.com/insightsdirect/ 2024-02-21 SGinvestors.io

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