Brokers’ take: Maybank says Sembcorp undervalued against peers; initiates ‘buy’

MAYBANK on Wednesday (Aug 3) initiated coverage on Sembcorp Industries with a “buy” call and target price of S$3.40.

The research team sees the energy player as not only a leader in sustainable solutions but also undervalued when stacked up against its peers.

The stock is trading at 10.3 times Maybank’s FY2022 earnings estimates, compared to regional utilities peers, which are averaging at 20.7 times and Singapore industrial peers, which are trading at around 17.8 times.

“Sembcorp has been consistently generating a higher return on equity than its peers. It maintains a high return on sustainable equity ratio compared with top Asian utilities and Singapore industrial peers,” said Maybank analyst Kelvin Tan in a report.

His target price of S$3.40 implies a potential upside of 12.6 per cent from the counter’s last trading price of S$3.02 as at the midday trading break on Wednesday. Shares of Sembcorp were up 2.4 per cent or S$0.07 at the time.

Maybank also likes Sembcorp for its substantial additional earnings potential from its plan to boost renewable energy capacity, as well as continued high tariffs contributing to “good spark spreads” in Singapore and India.

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Furthermore, the group is resilient to rapid inflation and high interest rates and is unique amid the scarcity of solid ESG (environmental, social and corporate governance) companies in Singapore, Tan added.