Marine’s net profit up 18% on higher rig building turnover. Utilities’ net profit in 2Q09 rose 11% yoy. Operations in the UK, Vietnam and the UAE performed well. However, 1H09 net profit declined 5% yoy mainly due to lower contribution from the UK as the UK business was affected by the expiry of certain favourable supply contracts as well as the depreciation of the pound sterling.
EE posted higher 1H09 net profit on lower operational costs. Industrial Park’s reduced net profit for both 2Q09 and 1H09 was due to lower land sales from its Vietnam industrial parks and reduced earnings from Gallant Venture. This was mitigated by better performance from the China industrial park. Lower earnings for Others/Corporate was due to write-back of tax provisions made in 2Q08 and 1H08.
With close to 60% of its earnings and valuation derived from SembCorp Marine (SMM), SembCorp Industries’ (SCI) share price performance is significantly dependent on SMM. We are neutral on SMM. While its new contract wins of S$1.1b ytd is on track to meet our S$2b estimate for 2009, our valuation of the stock factors in a longer-term higher annual contract win level of S$3b. As a result of the downturn in the petrochemical and chemical sectors, three UK customers, who contributed to about 30% of UK operations’ 2008 turnover, have announced closures of their on-site facilities. SCI said it will continue to focus on reconfiguring its assets to improve revenue and on reducing costs.
Earnings forecasts and target price raised marginally. We raise our net profit forecasts marginally by 2-3% and our fair price from S$3.20 to S$3.30, premised on our revised sum-of-the parts (SOTP) valuation of S$3.29/share. Maintain HOLD.
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