From Kim Eng:-
Sembcorp Industries F1Q08 results – BUY (Rohan Suppiah; DID:6432 1455) Previous Day Closing price: S$4.30
Recommendation: BUY (maintained)
Target price: S$5.76 (maintained)
Net profit up a steady 8%
SembCorp Industries (SCI) reported net profit of S$123.1m, down 4.3% - xcluding a S$14.5m write back in 1Q07, net profit rose a decent 7.8%.
Typically, SCI’s Utilities and Marine businesses were its main contributors, accounting for 49% and 45% of net earnings respectively.
While utilities contribution was lower, 1Q07 included a one-off gain from the sale of land at Wilton in the UK.
Near term issues for utilities
After discounting the land sale, utilities will probably see marginally lower contributions from its UK and China operations.
SCI has not been able to push through price increases at its Shanghai cogen plant in order to keep pace with a 28% in natural gas costs.
Wilton’s performance is expected to be affected by the expiry of some contracts in the UK and any further depreciation in the English pound.
Expansion into water going to plan
With the awarding of Singapore’s latest Changi NEWater plant in February, SCI has moved into water technologies in a significant way.
With a capex of S$188m, SCI will be able to recognize some earnings from this contract in the near term, but this is marginal and purely an accounting treatment.
We do not expect significant cash flows until 2011.
Maintain Buy
We expect to see Utilites continue to be a steady performer, while Marine is still on its earnings growth trajectory as it converts on its S$6.6bn order book.
We are maintaining our forecast for net profit to grow by 5% in FY08. SOTP target price of $5.76 is maintained, as is our BUY recommendation.