Sembcorp's Q3 profit down 22.7% at S$196.6m (Amended)

Singapore

SEMBCORP's net profit for the third quarter ended September tumbled 22.7 per cent to S$196.6 million, from S$254.4 million a year ago.

The drag came from the utilities segment, which saw a 34 per cent fall in net profit to S$114.2 million. On a nine-month basis, this segment registered a 20 per cent drop in net profit to S$298.6 million.

"The utilities business' net profit for 3Q14 and 9M14 decreased mainly due to 3Q13 and 9M13 including the gains from the IPO of Salalah, which were offset by an impairment made for operations on Teesside in the UK. Excluding these significant items, the business achieved a 10 per cent net profit growth in 3Q14 from S$103.8 million in 3Q13 and net profit was slightly lower in 9M14 compared to 9M13 of S$305.1 million," said the group.

The urban development unit's Q3 net profit more than doubled to S$4.93 million from S$2.31 million.

Sembcorp's July-September turnover inched up 3 per cent to S$3.07 billion. The increase in turnover was mainly due to timing difference in recognition of projects, but was also contributed by a subsidiary dealing in its specialised construction activities, and was offset by its urban development turnover, which nearly halved in the third quarter this year, compared with the same period in 2013.

Sembcorp's chief financial officer Koh Chiap Khiong stressed that profit developments in this area are dependent on land sales and thus, are "a bit lumpy".

For the nine months ended September, Sembcorp's net profit fell 6 per cent to S$560.5 million, while revenue bumped up by 5 per cent to S$8.23 billion.

For this period, the biggest net profit contributor - utilities - declined from comprising 62 per cent of Sembcorp's net profit mix in 9M13 to just 53 per cent. At the same time, Sembcorp's marine business contribution expanded to 42 per cent from 38 per cent.

In a company statement, Sembcorp stated that competition in Singapore's power market continues to be intense and is expected to affect the performance of its utilities business.

Currently, Sembcorp's market share for total energy supply in Singapore is about 10 per cent, but to prevent power generation companies from exercising their market power, the country's gas regulator, the Energy Market Authority, has halved vesting contract levels from the current 40 per cent to 20 per cent by the start of 2016. And if income is not enough to covering operating costs, power generation companies will either "need to find alternatives or will be bleeding costs", said the company's president and CEO Tang Kin Fei.

But "alternatives" might be in its overseas business, which the company expects to grow. "In China, our utilities business signed a conditional joint venture agreement for two power plants in Chongqing and in India, commissioning has commenced for the first of two units of our 1,320-megawatt Thermal Powertech power plant," Mr Tang said.

As for its marine business, Sembcorp announced that it has secured significant new contracts worth S$4.2 billion since the start of this year, ramping its net orderbook up to S$12.6 billion for completions and deliveries till 2019. Several of its projects are also scheduled for completion by next year - the fabrication facility of its integrated marine hub at Tuas is set to be completed by the third quarter of 2015, and its Brazilian shipyard is also scheduled for construction completion in 2015.

Despite the current low oil price environment, the company believes that long-term fundamentals driving the offshore exploration and production market remain stable. However, it acknowledges that competition will continue to exert pressure on margins and the reduction in capex spending could impact new orders.

Q3 earnings per share were 10.86 cents and net asset value per share was S$3.02 as at Sept 30. On Thursday, the counter closed at S$4.69, down 2.69 per cent.

Correction: An earlier version of this article incorrectly implied that only Sembcorp will be affected by the Energy Market Authority's review of vesting contract level, but in fact all power generation companies in Singapore, including Sembcorp, will be affected. The article above has been revised to reflect this.