SEMBCORP INDUSTRIES

SEMBCORP INDUSTRIES | BUY

OCT 9 CLOSE: $3.01

TARGET PRICE: $3.41

UOB Kay Hian, Oct 9

Spot electricity prices from India Electricity Exchange continue to stay above the Rs 7 (13 Singapore cents)/kWh level, driven in part by a shortage of thermal coal.

With few plants having port access to import coal, the undersupply situation could persist longer than expected.

Even if spot electricity prices retreat back to Rs 3.5/kWh, Sembcorp Gayatri Power Ltd remains in a position to make smaller losses or even break even.

Overall, it is very likely that India will break even or even turn a profit in 2018.

We stand pat on our earnings estimates for now.

The turnaround story in India remains on track.

Elevated spot electricity prices will do well to induce more power purchase agreements to be signed.

With India recovering, Sembcorp Industries is on track to achieve its double-digit return on equity goals.

The nonmarine segment is currently trading at an implied 7.1 times forward price/earnings ratio, (long term mean: 8 times) and could be lower given the potential upside from India's earnings.

Maintain "buy" with an unchanged target price of $3.41.

Educator Index

Archive

2018
October
September
August
July
June
May
April
March
February
January