Sembcorp shares end 4.3% higher as CGSI adds counter to top Singapore picks
Analysts say the stock is trading at an ‘undemanding’ valuation of nine times its estimated FY2027 PE ratio
[SINGAPORE] Shares of energy player Sembcorp Industries jumped on Wednesday (Mar 18), buoyed by a bullish broker note highlighting its defensive qualities.
The counter was up as much as 4.4 per cent over the day, climbing S$0.26 to reach S$6.11 as at 4.07 pm. It later closed at S$6.10, up by 4.3 per cent or S$0.25, with 11.3 million shares changing hands.
The rally comes as CGS International (CGSI) added Sembcorp to its list of Singapore top picks, while keeping its target price steady at S$7.68. In a report on Mar 17, the research house cited the company’s relatively cheap valuation and its defensive qualities against global gas price volatility.
Natural gas futures have fluctuated recently. They slipped 3.6 per cent to US$2.93 per million British thermal units (mmBtu) on Wednesday, after having surged to a high of US$3.23 per mmBtu on Mar 12 – which was nearly 13 per cent above the pre-Iran war price of US$2.86 per mmBtu.
Bargain valuation
CGSI analysts noted that the stock is trading at an “undemanding” valuation of nine times its estimated FY2027 price-to-earnings ratio, presenting higher dividend potential.
Following a recent non-deal roadshow in Kuala Lumpur, analysts Lim Siew Khee and Meghana Kande noted that Sembcorp is largely sheltered from global gas price shocks. The group’s long-term power contracts feature fixed margins and cost pass-through mechanisms.
Furthermore, the company relies on piped natural gas import contracts with Indonesia and Malaysia, which carry low supply risk, according to management. This positions Sembcorp well to navigate limited liquefied natural gas supplies following Qatar Energy’s recent force majeure declaration, the analysts said.
Addressing concerns regarding Sembcorp’s balance sheet, CGSI noted that the acquisition of unlisted Alinta Energy is expected to push the group’s net debt-to-Ebitda ratio up to between 4.6 and 4.7 times in FY2026, from 3.9 in 2025.
However, its analysts pointed out that Sembcorp’s management views the leverage as manageable, and reiterated its priority to gradually increase its dividend payout ratio towards a target of 60 to 70 per cent, from 44 per cent in 2025.
The Alinta deal is also projected to be earnings accretive, adding roughly S$100 million in the second half of FY2026 and generating annual cash flows of over S$700 million.
