Brokers’ take: CGS-CIMB raises Sembcorp Industries target to S$3.66 on strong profit outlook

CGS-CIMB raised its target price on Sembcorp Industries : U96 0% to S$3.66 from S$2.96 as it expects the energy and urban development company will see a strong profit outlook in the next few years.

The research team maintained its “add” call on the counter. It noted that the target price implies a valuation of 12.7 times the brokerage’s earnings estimates for FY2023, which is still below regional peers’ 13 times.

It expects Sembcorp’s consistent delivery of earnings will be the key catalysts to keep investors’ confidence.

Shares of Sembcorp were trading at S$2.91 as at 10.06 am, up S$0.13 or 4.7 per cent. The counter closed at S$2.91, up 4.7 per cent or S$0.13.

The research team raised its FY2022 revenue and net profit estimates for Sembcorp’s conventional energy segment, on consistently high tariffs on the Indian Energy Exchange and strong Uniform Singapore Energy Prices.

Amid the strong visibility of merchant market power prices in India and Singapore, CGS-CIMB expects Sembcorp’s plant 2 in India may turn profitable in FY2022, as well as strong full-year profits from Cogen – Sembcorp’s power arm – in the same year.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The research team also raised its profit estimates for Sembcorp’s renewable energy segment in FY2022 and FY2023, to reflect contributions from its new acquisitions in the segment, although this is slightly offset by lower growth in integrated urban solutions on weaker land sales from China.

It noted that Sembcorp’s acquisitions of SDIC New Energy and CGN Capital Partners, which were made in 2021, are starting to contribute in 2022 ahead of expectations.

CGS-CIMB expects the decarbonisation of Sembcorp’s thermal power in India could become a catalyst beyond FY2022, where thermal power profits can be replaced by earnings from capacity expansion from the renewable energy segment.