Sembcorp H1 profit rises 56% to S$608 million on disposal of coal business
ENERGY company Sembcorp Industries posted a 56 per cent rise in net profit to S$608 million after accounting for the disposal of its Indian coal business and one-off gains for the six months ended Jun 30, on a continuing-operations basis.
These one-off gains comprised S$5 million in divestment gains from the sale of the group’s water businesses in Indonesia and S$1 million in negative goodwill from acquiring 49 per cent of a joint venture in the solar business in Vietnam.
Without these one-off gains, net profit for the half-year rose 55 per cent to S$602 million from S$389 million during the same period the year before, based on the group’s financial results for its current financial year (FY) released on Friday (Aug 4).
Taking into account losses from its discontinued operations, which comprises the completed sale of its coal business in India in January this year, net profit for the half-year came in at S$530 million.
Revenue fell 6 per cent to S$3.7 billion from S$3.9 billion, as a result of lower gas prices as well as the termination of a public cleaning contract in Singapore in the second quarter. Earnings per share, after accounting for exceptional items, came in at S$0.3408, higher than S$0.2182 in the previous corresponding period.
Despite the drop in revenue for the conventional energy segment, it was still one of the main contributors to Sembcorp’s revenue, in addition to renewables.
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Taking into account exceptional items, net profit from the renewable-energy segment increased 55 per cent to S$118 million from S$76 million a year ago. This was driven by contributions from its renewable assets in China, a new energy storage system and higher electricity prices for the solar business in Singapore, as well as acquisitions completed in Q1 2023.
Renewables now make up 61 per cent of Sembcorp’s total energy capacity, an increase from 59 per cent at the end of FY2022.
Income from conventional energy rose 47 per cent to S$435 million from S$296 million, mainly due to higher electricity prices in Singapore.
Net profit for the integrated urban solutions segment, however, fell 15 per cent to S$53 million from S$62 million a year ago. In addition to the loss of a public cleaning contract in Singapore, the segment was also weighed down by lower land sales in Vietnam, though this was alleviated by higher land sales in Indonesia.
With energy prices expected to remain volatile, Sembcorp has increased the proportion of its gas contracts where prices would be locked in for a number of years.
The proportion of power purchase agreements with a tenure of more than five years increased to 48 per cent of its total gas portfolio as at Jun 30, higher than the 39 per cent a year before. Those with tenures of less than five years make up 48 per cent of its portfolio, down from 53 per cent from a year ago. Contracts relying on energy spot prices are further narrowed to 4 per cent from 8 per cent.
Sembcorp’s chief executive officer Wong Kim Yin said at a media conference on Friday that energy prices have been volatile, where demand and supply is much tighter than five years ago as slight variations in either market forces can move prices significantly.
“We know we don’t want to be exposed to this… With a contracted position, we largely insulate ourselves from fluctuations that could be coming in over the next five years. That was a deliberate strategy,” he said.
With more contracted positions, Sembcorp said it expects earnings from its conventional energy segment to remain stable even beyond H2 2023, partly contributed by an 18-year contract with semiconductor manufacturer Micron, and a 10-year contract with telecommunications company Singtel.
“One has to decide, ‘Do I bet on the market having these spikes and then be not contracted and go in there to capture this, or do I sign up the contracts and get a certainty on volume and price?’ That’s the trade-off,” said Wong. “What we are saying is, moving forward, given the uncertainty and regulatory changes expected to come in, we are taking the position that we would rather have certainty than take our chances in the market.”
For its Singapore market, Sembcorp expects to see an increase in the number of long-term power purchase agreements for H2 2023, eventually taking up slightly more than two-thirds of its capacity in the market, said chief financial officer Eugene Cheng.
The proportion of contracted positions for the Singapore market has remained at around two-thirds of Sembcorp’s capacity in 2022, but that has dropped in the first half of this year due to the take-down of a turbine for maintenance.
“In the current climate, there are significant consumers of electricity keen to sign in long-term power purchase agreements. We are looking to contract more capacity of such nature, as opposed to shorter one- to three-year retail contracts,” said Cheng.
As for Sembcorp dropping plans to sell its waste-management business and its energy-from-waste plant, Wong said that the outcome of the talks did not meet its expectations. “We walked away because it didn’t do our shareholders any good if we followed through.”
Sembcorp declared an interim dividend of S$0.05 per ordinary share, which will be distributed to shareholders on Aug 22.
Shares of Sembcorp closed flat at S$5.60 on Friday.
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