Broker's Take: Sembcorp Industries downgraded to 'hold'

OCBC Investment Research said on Friday it has downgraded Sembcorp Industries to "hold" with a target price of S$4.72.

This comes after Sembcorp Industries posted an 11 per cent year-on-year drop in revenue to S$2.3 billion and a 23.1 per cent drop in net profit to S$142.2 million for Q1 2015, slightly below the research house's expectations.

OCBC said 2015 is expected to be challenging for the Singapore energy business, but the overseas business is expected to continue to deliver a steady performance.

On the marine side, new orders remain minimal.

"After our rating upgrade on February 18, Sembcorp Industries' stock appreciated by about 16 per cent to close at S$4.86 on April 21, but has since retreated to S$4.49 versus February 17's close of S$4.20.

"We roll forward our valuations, and with a lower fair value estimate for Sembcorp Marine in our sum-of-the-parts valuation, we lower our fair value estimate from S$4.84 to S$4.72. Downgrade to HOLD, with a potential upside of 8.6 per cent (this includes a dividend yield of about 3.6 per cent)."