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RHB |
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Sembcorp Industries (SCI SP) Future Focus: Energy And Urban; Keep BUY
Keep BUY with a higher SOP-derived SGD2.11 TP from SGD2.00, 38% upside. Sembcorp Marine (SMM SP, BUY, TP: SGD1.13) and Sembcorp Industries have jointly announced a proposal for SMM’s SGD2.1bn recapitalisation and de-merger, as SCI’s shareholders receive SMM shares. We view the proposal positively, as this will enable SCI to focus on its energy and urban development businesses. Hence, we lower our SOP conglomerate discount. Even if the offshore business takes a longer time to recover, SCI will not be adversely affected after the de-merger, in our view.
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Sembcorp Marine (SMM SP) Stronger Balance Sheet Post Rights; Keep BUY
Keep BUY, new P/BV-based SGD1.13 TP from SGD1.28, 33% upside. Sembcorp Marine and Sembcorp Industries (SCI SP, BUY, TP: SGD2.11) have jointly announced a proposal for a SGD2.1bn recapitalisation and demerger. This will strengthen SMM’s balance sheet and result in Temasek becoming a direct shareholder of SMM. We view the proposal positively, as this will help SMM better ride through the tough business conditions, although the share price could fall in the short term. We see potential for further restructuring beyond the proposal just announced.
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RHB |
UOB KAYHIAN |
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Food Empire (FEH SP) RUB Appreciation Helps; Keep BUY
Keep BUY and SGD0.75 TP, 42% upside and c.3% yield. The RUB has appreciated 15% against the USD over the last two months amidst oil price improvements. This is positive for Food Empire, as it should help support gross margins and minimise FX losses. We still expect 2Q20 results to be soft due to the introduction of the non-working period in Russia from end March to mid-May. We expect business to start picking up in June with the relaxing of the lockdown measures.
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A Sea Change
SCI and SMM announced a significant two-stage transaction yesterday with the latter raising S$2.1b via a 5-for-1 rights issue, followed by a de-merger of the two companies. After repaying a S$1.5b loan to SCI, SMM will end up with S$600m cash which it needs to bridge current difficult industry conditions. In the short term, both stocks may underperform, however we are hopeful that business conditions will improve for both in the next 6-12 months.
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