Brokers’ take: CGS-CIMB highlights multiple catalysts for Sembcorp; raises target to S$6.20
Michelle Zhu
CGS-CIMB has upped its price target for Sembcorp Industries to S$6.20 from S$5.12 following news of the group’s potential divestment of its waste management business, SembWaste, and its energy-from-waste plant.
In a report on Tuesday (Jun 6), the research house said an estimated S$225 million to S$250 million divestment gain from the transaction could result in a higher dividend payout of an additional S$0.05 to S$0.06 per share for FY2024.
Proceeds from the disposals could also be used to fund Sembcorp’s renewable energy capacity growth, added its analysts.
The new target price incorporates a higher FY2024 price-to-earnings multiple of 14 times versus 12 times previously, which brings the stock’s valuation in line with its regional peers.
It is also based on the assumption that SembWaste is valued at nine to 10 times FY2022 enterprise multiple, with the plant valued at one times price-to-book at an estimated book value of S$180 million.
CGS-CIMB continues to rate Sembcorp at “add” citing “multiple visible catalysts ahead” for the group.
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Highlighting “surprisingly strong” spot prices in Singapore, the analysts believe Sembcorp will be able to maximise its margins by optimising its gas costs between liquid natural gas and piped natural gas.
This is due to the group’s ability to optimise its gas feedstock, as well as its position as one of four licensed gas importers in Singapore.
They further expect the group to benefit from positive share price momentum once it announces a new renewable energy target, after surpassing its previous one as at end-March 2023.
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CGS-CIMB also takes the view that the counter could be included in the MSCI Singapore Index by September or November 2023, given its substantial market captialisation of about S$10 billion as at Jun 5.
“Finally, we expect Sembcorp to fund its new capacity growth via more asset monetisation,” stated its analysts.
In their view, the company could start capital recycling while paring down its majority stake in more mature renewable energy assets in India and China, in particular renewable projects that have been operating for more than five years.
This in turn could reduce the need for a cash call in the medium term, they said.
Shares of Sembcorp were trading S$0.02 or 0.4 per cent lower at S$5.33 as at the midday break on Tuesday.
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