Sembcorp Industries' 19% profit dive blamed on marine arm

Utilities segments must work doubly hard.

According to Nomura, as Sembcorp Industries ramps-up to achieve its Vision 2015 target (power/water capacity +80%/+43% in four years), we believe the group has built a credible pipeline of projects, positioning the utility division to achieve a 2011-14F CAGR of 10% (flat for marine).

Here's more from Nomura:

SCI posted a 19% drop in 3Q12 net profit to SGD181mn, on lower marine earnings from subsidiary Sembcorp Marine. Utilities continued to perform strongly, now accounting for 53% of group net profit, and helped offset marine earnings decline.

We expect utilities earnings to remain firm in FY13-14F on the back of sustained growth at the group’s expanding Singapore energy and integrated utilities operations, as well as increased contributions from the Middle East. SMM’s orderbook of SGD12.5bn gives good earnings visibility for the marine division, in our view.

SCI trades at FY12-14F P/E of 12.9x, 12.8x and 11.4x, respectively, versus a historical P/E band of 7-19x. In our view, ROE of 16% and dividend yield at 3% remain attractive. We believe valuations remain undemanding: i) stub (utilities) P/E valuation of 8.1x vis-à-vis Asean pure play peers at 12-18x and ii) a defensible dividend yield of 3%.

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