Sembcorp’s overseas growth unable to mitigate domestic weakness

Operational pressures still abound.

Sembcorp reported lower than expected earnings for 1Q15, with the utilities segment falling by 19%.

According to a report by RHB Group, contributions from SembMarine fell 13%, and the Urban Development division fell to a breakeven position with land sales having been pushed back to 2Q15. 2H15 could be better.

RHB analysts expect the Indian Thermal Powertech Corporation India Ltd (TPCIL) power plant to be in full operation by end-2015. Sembcorp also paid SGD232m for a 60% stake in Green Infra Ltd
(SGI).

Still according to RHB. applying Sembcorp’s historical 4-6% ROA on SGI’s SGD884m of assets, an approximate ballpark annual earnings contribution from this new subsidiary could be in the range of SGD21m-32m.

However, if the 1Q15 weakness persists, these additional income streams would be
unable to fully offset the annualised c.SGD80m domestic profit shortfall.

Here’s more from RHB:

Sembcorp’s Marine segment had a challenging quarter with only SGD56m of order wins YTD and lower operating margins at 10.6%. Its first drillship appears at some risk of a delivery delay, and payments from Sete Brasil are currently under a 90-day moratorium. While we think that Sete Brasil will eventually find a solution to its financial issues, the near-term outlook remains clouded.

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