SINGAPORE (July 13): UOB Kay Hian is maintaining its “buy” call on Sembcorp Industries (SCI) with a target price of $3.66 given better operational performance in its India operations.
SCI India operations reported a 5-11 ppt q-o-q improvement in plant load factors (PLF) for 2Q17, with its first power plant – Thermal Powertech Corporation India (TPCIL) – reporting 88.2% PLF and its sister power plant – Sembcorp Gayatri Power (SGPL) – reporting 77.9% PLF.
In 2Q17, India’s spot electricity prices were down 8.6% y-o-y. During April to May, its prices traded below 2016 levels, after which it trended in line with the 2016 lows.
In a Thursday report, analyst Foo Zhi Wei said headline losses for the India operations will be higher q-o-q due to a one-off refinancing charge as SCI refinances SGPL loans to a lower interest rate.
The refinancing is expected to be completed in 2Q17 and the full charge is about $30 million, of which $5.2 million was already booked in 1Q17.
Foo estimates that core losses for India should be lower than 1Q17, excluding the one-off refinancing charge.
The analyst expects a 20-25% loss decline q-o-q in SGPL given better operational performance paired with earnings contributions from both units, instead of one unit in 1Q17. TPCIL and SembCorp Green Infra (SGI) should also help narrow 2Q17 losses as the groups see marginally higher earnings.
“Utilities earnings performance will likely be lacklustre in 2017, but should remain on track for a pick-up in 2018 contingent on award of a long-term PPA for SGPL,” says Foo.
As of 10.38am, shares of SCI are trading 3 cents higher at $3.12.
