Net profit is below expectation. SCI had S$9.9b revenue (+15.2% y-o-y) and S$507m headline net profit (-3.6%) in FY08. SCI’s earnings were held up by higher net profits from its Marine business (+32% y-o-y), which mitigated the weaker results from Utilities (-13%), Environment (-84%), and Industrial Parks (-7%) businesses. SCI’s recurring net profit was down 4.2% y-o-y to S$534m in FY08, vs. our estimate of S$539m.
Utilities business’ outlook to remain soft in 2009. We believe that SCI’s supposedly resilient Utilities business may be at risk of customers shutting down operations or asking for more rebates, should the economic downturn persist. Indeed, SCI highlights that one customer in the UK is now considering cessation of production. While SCI would mitigate the risks through realigning of resources to meet customers’ needs under its centralized utilities model, we project 10% y-o-y dip in Utilities’ net profit to S$181m for FY09, on the back of S$4.2b (-6% y-o-y) revenue projection.
SCI declares 11 Scents dividend per share. We have cut net profit estimate by 7.7% to S$509m in FY09, and fair value to S$2.00 (vs. S$2.39 previously). The lower fair value is largely due to the use of market value (vs. target price previously) for listed subsidiary, SembCorp Marine, in our SOTP methodology. SCI declares 27% y-o-y lower dividend per share of 11 Scents for FY08, implying 39% dividend payout ratio (vs. 50% in FY07).
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