SINGAPORE (Nov 21): OCBC Investment Research is upgrading its rating on Sembcorp Industries (SCI) to “buy” from “neutral” with an unchanged fair value estimate of $3.59.
This comes after SCI’s share price recently corrected 10% compared to the STI’s flattish performance, as the research house factors in the greater upside potential for the stock post-correction.
In a Tuesday report, lead analyst Low Pei Han highlights the possibility of the group undertaking an initial public offering (IPO) of Sembcorp India, which consists of thermal and renewable power assets, as suggested by a report in October by LiveMint.
Looking back on the group’s highlights in 2017, the analyst notes how SCI’s focus over the past year has mostly been on India – as demonstrated through its increased stake in the India renewable energy business, Sembcorp Green Infra (SGI), as well as securing the development rights to the Andhra Pradesh Amaravati City start-up area, among others.
While an IPO of Sembcorp India would not be surprising to Low, she believes the greater focus will still be on the results of the group’s strategic review, which should be made known by end-2017.
See: Sembcorp acquisition of remaining stake in SGI expected to boost group earnings by 15%
See: Sembcorp wins another bid in India's second wind power auction
“There has been speculation of a potential privatisation or divestment of the marine business, as well as possible divestments of non-core assets and utilities assets in more mature markets to invest in marine or other emerging market utilities assets,” says Low.
“Another possible investment that has been speculated on is the LNG business in Singapore, with its bright future prospects and SCI’s natural fit for this business, given its relevant expertise and established track record,” she adds.
As at 10.24am, shares in SCI are trading 3 cents higher at $3.08, or 15.9 times FY18 forecast earnings.
