Sembcorp : U96 0%Industries : U96 0%’ recent share price drop is a “buying opportunity” for investors, Maybank Securities said in a report on Thursday (Jun 29).

With the energy player’s market capitalisation crossing the S$10 billion mark, its potential to be included in the MSCI index in August or November 2023 could also be a catalyst, the research team said.

It has maintained its “buy” call on Sembcorp, but raised its target price slightly to S$6.10 from S$6. The counter was trading 3.8 per cent or S$0.21 higher at S$5.75 as at 2.26 pm.

The new target price is 12 times Maybank’s FY2024 price-to-earnings estimates, in line with the average of Sembcorp’s regional peers.

Maybank analyst Kelvin Tan noted that Sembcorp shares fell on Jun 20 amid heavy trading, the day after the Energy Market Authority said that it will introduce a temporary price cap on wholesale electricity prices.

The temporary price cap, which came amid rising electricity costs in Singapore as a result of the global energy crisis, is expected to take effect on Jul 1.

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

Tan expects “limited impact” from the price cap and estimated occurrence to stand at about 4 per cent, reducing the average uniform Singapore energy price (USEP) by only 8.1 per cent.

The analyst is also positive on Sembcorp’s growth prospects, noting that the group has secured at least two-thirds of its electricity capacity under long-term contracts with chipmaker Micron and telco Singtel.

This leaves only one-third of the group’s electricity capacity to benefit from market volatility during the projected power market crunch, noted Tan.

Assuming USEP falls by S$20 per megawatt hour, the analyst estimates that the impact on Sembcorp could be S$35 million, or 4 per cent of its annual profit.

Taking into account a moderate outlook for electricity prices, Maybank raised Sembcorp’s FY2023 to FY2025 earnings estimates by 2 per cent to 4 per cent.