Normalizing of Utilities business to give better visibility to investors. Earnings of Sembcorp Industries' (SCI) Utilities business are expected to normalize from 2Q09 onwards, since certain of its favorable supply contracts in the UK have already ended in 1Q08. While SCI's utilities business may still suffer revenue decline due to possible rebates given to clients in view of weak economic environment, we expect the group's austere cost measures to result in stable recurring profits in 2Q09. As a recap, SCI's recurring net profit for both its Singapore and UK Utilities operations were estimated to be relatively stable q-o-q at about S$21m in 1Q09 (vs. S$22m in 4Q08) and about S$9m (vs. S$10m), respectively.
Potential upside from removal of order cancellation assumption for SMM by end 2009. We see the on-schedule cash payments for Petroprod's jackup rig (before mid-July 2009), and Seadrill's semi-submersible rig (estimated by end 3Q09) as catalysts for the eventual removal of our S$1.1b order cancellation assumption for SCI's listed subsidiary, Sembcorp Marine. This could potentially add >3% to our fair value for SCI.
Maintain BUY on SCI. We have upgraded our fair value to S$3.63 for SCI, in line with the higher fair value for Sembcorp Marine. Maintain BUY on SCI.
Sponsored Links
Related Posts by Categories
No comments:
Post a Comment