SINGAPORE (Aug 4): RHB is maintaining its “neutral” rating on Sembcorp Industries with an unchanged $3.20 price target after the group on Thursday posted a 36% decline in 2Q earnings to $55.3 million.
Sembcorp is currently in the midst of finalising its strategic review, and is expected to announce its decision by end-FY17.
See: Sembcorp reports 36% decline in 2Q earnings to $55.3 mil
In a Friday report, the RHB research team highlights that while the group registered year-on-year growth in terms of revenue, EBITDA and operating profit, its bottomline was dragged down due to higher interest expenses.
It also projects that Sembcorp’s India unit, Sembcorp Gayathri Power (SGPL), could continue to operate with losses until it manages to sign a long-term power purchase agreement (PPA) – which it does not expect to occur over the next two to three years.
Going forward, the team believes the refinancing of the India operations’ borrowings should help lower interest expenses incurred by SGPL, which is running at cash cost.
See: Sembcorp reportedly in talks to refinance India power unit’s long-term debt
On the marine front, the research team notes that Sembcorp continues to market its proprietary Gravifloat technology, although it would take time for it to translate into orders. While core profit for marine returned into the black after registering losses in 1Q, RHB only expects the segment to “play catch up” in 2H17F with its pipeline of projects.
“Earnings from [Sembcorp’s] marine segment are expected to continue to be sluggish due to a low demand for its offshore and marine assets,” adds the team.
As at 10.50am, shares of Sembcorp are down by 2 cents at $3.20.
