SINGAPORE (Aug 23): OCBC Investment Research is upgrading Sembcorp Industries (SCI) to “buy” from “hold” with an estimated fair value of $3.43.
The rating comes as management undertakes a strategic review of Sembcorp varied businesses. This should be completed by 4Q17.
In a Wednesday report, analyst Low Pei Han notes management said in the last quarter’s results briefing it is seeking a prudent approach, while wanting to be agile and capture opportunities when the market recovers.
Hence, Low expects some of the recommendations to include the divestment or privatisation of Sembcorp Marine.
To fund the privatisation, non-core assetswould have to be divested. This includes Sembcorp Design and Construction, as well as Singapore MINT.
In addition, certain utilities assets in more mature markets could also be divested.
In an effort to conserve cash, Sembcorp has prudently reduced its 1H17 interim dividend to 3 cents from 4 cents last year.
This shows that the management is keeping a close eye on its balance sheet where its net gearing has increased from 0.42 times in 2014 to 0.96 times as at 1H17, mainly due to higher debt load in the marine business, as well as project finance debt from the power plants in India.
“That said, whatever the results of the strategic review, we believe it will be done in the interests of shareholders,” says Low.
As at 11.16am, shares in Sembcorp are trading 5 cents higher at $3.04.
The stock is trading at 15.0 times FY16 earnings with a dividend yield of 2.7%.
