SINGAPORE (April 11): CIMB is maintaining its “hold” in Sembcorp Industries with a target price of $3.51, forecasting the group to report 25% lower net profit of $80 million in 1Q17 and its utilities division to report 30% lower net profit at $52 million.
While its utilities in Singapore should see stable earnings of $37 million, profits from China is likely to shrink to $16 million with India could register losses of $25 million.
To recap, Sembcorp’s wind division in India, Sembcorp Green Infra (SGI), won a project to build a new project with close to 250MW capacity.
(See also: Sembcorp wins contract for $405 mil wind power project in India)
Four other power players, including Mytrah Energy, Inox Wind and Ostro Kutch Wind, each snapped up similar contracts of 250MW each in this maiden 1,000MW wind auction, conducted by Solar Energy Corp of India.
Sembcorp’s project will be located in Tamil Nadu and connected to India’s Central Transmission Utility. The power will be sold to Power Trading Corporation under a 25-year agreement.
Costing INR19 billion ($405 million), the project will be developed in phases and fully commissioned between Sept 18 and March 19, in time for the high wind season. It will be 70% funded by project financing.
At a lower tariff of INR3.46/unit, CIMB estimates the current project to bring in $3-4 million of profit from FY19, adding 23% to its current profitable wind business.
“We estimate the new 250MW wind power to add $3-4 million of net profit to SGI,” says analyst Lim Siew Khee in a Monday report.
SGI’s total wind capacity will also expand to above 1,200MW from 788MW as end of FY16.
Based on 788MW operating capacity, SGI delivered $13 million of net profit in FY16. By end FY17, CIMB expects it to grow to $19 million with 970MW operating capacity.
The key to ensuring higher returns is for the project to be stationed at high-wind areas, says Lim. Wind power is dominant in Tamil Nadu, with above 30% share in overall wind capacity installed in India.
The counter is trading 1 cent higher at $3.15.
