Sembcorp slams suspicions of abandoning marine segment

Here are 2 reasons why.

According to CIMB, there is no plan to abandon Marine despite concerns over its cyclicality and declining margins. Excluding Marine, SCI Utilities’ stub is not lofty, at 6.8x CY13 P/E vs. regional peers’ average 13x. 

Here's more from CIMB:

Despite new supplies of LNG into Singapore expected in May 13, we believe SCI will continue to enjoy competitive power margins, thanks to:

1) low carrying costs of its assets (largely depreciated) and cogen efficiencies relative to the other gencos; and

2) short-term bilateral power and gas contracts with industrial customers with good margins.

Management believes India’s returns could still be attractive as strong merchant power tariffs are likely to cover the costs of imported coal.

Management will be focusing on executing Brazilian drillships and commissioning a new integrated yard to boost its ship-repair volume.

Urban Development could contribute double digits to group profits by 2015, from its current 5% on the back of urbanisation in Vietnam and China. Perceived slow economic growth in Vietnam has not affected SCI’s industrial park; in fact, the group sees spillover demand from Japanese customers from an ongoing Sino-Japanese island dispute.

We expect Utilities to remain stable in FY13-14 with about 2% growth in earnings. 4Q12 Utilities Singapore could surprise on the upside even with the shutdown of its cogen plant from mid-Dec 12 to Jan 13. Growth could be achieved via short-term gas and power contracts.