Excerpts from UOB Kay Hian report

Sembcorp Industries- 4Q15: No privatisation of Sembcorp Marine on the cards.

(SCI SP/BUY/S$2.53/Target: S$3.80)
FY16F PE (x): 8.6 FY17F PE (x): 7.7

Privatisation of SMM is highly unlikely. In response to a pointed question on rumours of privatisation of Sembcorp Marine (SMM), Sembcorp Industries’ (SCI) management answered candidly that:

a) whatever decision it makes, it has to be “accretive to SCI shareholders...and this is important” and,
b) that SCI already has “a 61% stake in SMM...and should reserve its money to grow other businesses that give a higher yield”.

This is in view of an expected prolonged downturn in the marine business. Increase 2016/2017 core net profit forecasts by -2 to +4%.

We tweak our 2016/2017 net profit forecasts to S$528m (-2%)/S$590m (+4%) respectively, adjusting for divestments and a higher PLF assumption for TPCIL. 

We introduce our 2018 earnings estimate of S$664m.

Maintain BUY and raise target price from S$3.47 to S$3.80. We roll our target price forward, assuming 12x PE for the Utilities business.

Barring unforeseen circumstances, the India power plants are primed to drive strong earnings growth. Maintain BUY on valuation grounds.


Credit Suisse report says: 

"Management noted that any potential transaction involving Marine must be accretive to SCI's shareholders. It was noted that the near-term outlook for the oil and gas industry remains unclear, and there are ample investment opportunities outside of Marine. 

"We maintain our OUTPERFORM rating as we believe the current share price has not captured strong utilities earnings growth prospects from start-up of India power assets. We lower our 2016- 17E EPS by 21-22% and target price to S$3.00 (from S$4.20) due to lower marine estimates."

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