Sembcorp hounded by back-to-back profit threats

Both utilities and marine are at risk.

Sembcorp is hounded by back-to-back threats in both its utilities and marine businesses, according to a report by RHB.

RHB analyst Lee Yue Jer said that the group is at risk from overcapacity in the domestic power market, along with additional threats of rig delivery delays and Brazil yard issues by Semcorp Marine's customers.

"Both its utilities and marine divisions continue to suffer due to strong macro headwinds," he said.

Here's more from RHB:

Multiple threats to Singapore utilities’ profitability next year. Hyflux’s 411MW plant will be connected to the grid in 2H15, adding c.3% additional capacity to Singapore’s already oversupplied market (total licensed capacity was c.82% above peak demand in 2014).
We believe it could take 3-5 years for demand growth to substantially trim this oversupply.

In view of these issues, and the additional threats of rig delivery delays and Brazil yard issues by SembMarine’s customers, we trim FY15F/FY16F EPS by 2/10%, while our DPS outlook dips by 1 cent for both years to 16 cents. Our SOP-based TP also drops to SGD4.10 (from SGD4.40).

While the stock is inexpensive, at <10x P/E and 4.1% yields, the time required for a recovery exceeds our 12-month horizon – making this stock more suitable for long-term income investors.

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