Brokers’ take: Citi positive on Sembcorp’s green energy transition, raises target by 37.2% to S$5.98
Vivienne Tay
CITI on Monday (May 29) raised its target price on Sembcorp Industries by 37.2 per cent to S$5.98 from S$4.36.
This implies a potential upside of 19.1 per cent from Sembcorp’s last trading price of S$5.02 as at the midday trading break on Monday. The counter was up 2.5 per cent or S$0.12 at the time.
The rise in target price came after the research team applied a higher valuation target on Sembcorp to reflect the energy player’s “solid execution of its green transition strategy”. It also reiterated a “buy” call on the counter.
Citi now pegs Sembcorp’s energy business at an enterprise value of nine times’ earnings before interest, taxes, depreciation and amortisation; up from eight times previously.
The research team values Sembcorp’s integrated urban solutions business at a price-to-book ratio of 0.7 times, benchmarking it against large-capitalisation Singapore developers.
When stacked up against its regional utilities peers and renewable stocks, Citi views Sembcorp’s FY2023 estimated price-to-earnings ratio of 10 times as “inexpensive”.
Looking ahead, Citi believes the recent “persistently high” monthly average uniform Singapore energy price rates could support the performance of Sembcorp’s conventional energy segment, even as the market expects normalisation in FY2023 earnings due to lower tariffs.
The group’s regional and domestic decarbonisation initiatives could also provide opportunities when it comes to long-term business growth, said Citi analyst Jame Osman.
*Amendment note: The headline has been amended to reflect the correct target price of S$5.98 instead of S$5.38.
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