Sembcorp’s year-to-date performance shows there’s ‘good in goodbye’

THE mega merger of Singapore’s offshore and marine (O&M) giants Sembcorp Marine (Sembmarine) and Keppel O&M has drawn plenty of attention this year, but investors have not forgotten Sembcorp Industries .

Following what one analyst described as a “gloriously messy recap and demerger” of Sembmarine from its former parent Sembcorp, in a deal that was done and dusted 3 months after being unveiled in June 2020, Sembcorp has made steady and marked progress on its clean energy pivot.

The market is visibly pleased with Sembcorp’s efforts. Among the constituents of the local bourse’s key Straits Times Index, Sembcorp is the second-best performer this year on the back of robust trading volumes.

It has returned 44.5 per cent — only just behind Yangzijiang Shipbuilding at 44.9 per cent, and slightly ahead of Jardine Cycle & Carriage ’s return of 43.8 per cent.

According to SGX My Gateway, Sembcorp had also drawn the sixth-highest net institutional inflows of S$147 million (versus 2021’s S$89 million) over the first 25 weeks of the year. The counter’s total returns for the year to Jun 24 stood at nearly 45 per cent.

Two major themes are driving the sizzle surrounding the utilities giant, which in May last year sharpened its lens and set out on a plan to transform its huge portfolio from brown to green across its operations in South-east Asia, China and India.

First, a global energy crunch has led to soaring electricity prices. That has been good for Sembcorp’s conventional energy segment, which last year was the biggest contributor to its bottomline (this was followed by its sustainable solutions businesses comprising renewables and integrated urban solutions, which accounted for 35 per cent of net profit before exceptional items and corporate costs).

Since last year’s staggering spikes in the USEP (Uniform Singapore Energy Price) owing to gas curbs and exacerbated by the global energy crisis, Singapore’s electricity spot prices remain elevated. Much of that is owing to the Russia-Ukraine war, which has upended the global supply chain and tightened market conditions in the energy space even further.

Over the first half of this year, the USEP rose to an average of S$327 per MWh (megawatt-hour) — up 11 per cent half on half and 242 per cent year on year. This has benefited Sembcorp, which is a leading electricity and gas provider in the city-state. On the back of that, CGS-CIMB analysts Lim Siew Khee and Izabella Tan said in a recent report that they expect the “spark spread” for Sembcorp’s Singapore power to surge.

Similar trends have helped the company’s Indian coal business. Sembcorp has pledged to no longer invest in new coal-fired energy assets to meet its net-zero emissions goal by 2050. But the pledge hasn’t stopped the company from benefiting from high electricity prices, due to a much hotter summer.

Second, the group’s green appeal remains intact — and is blossoming with fresh new developments.

Just last week, Sembcorp announced it has been picked by Singapore’s Energy Market Authority (EMA) to build, own and operate 200 MWh of energy storage systems on Jurong Island. The project, expected to be completed by the year’s end, is significant as energy storage is crucial for a resource-constrained nation with intermittent renewable energy sources.

Sembcorp claims to be among Asia’s largest battery operators. It has a battery storage portfolio in Singapore and the UK totalling 624 MWh.

The latest job brings Sembcorp’s renewables portfolio to 7 GW (gigawatt) in operation and under development globally — another step closer to its 2025 target of 10 GW gross installed renewable energy capacity.

This followed an announcement earlier in June that its wholly-owned Chinese subsidiary has completed the acquisition of a 98 per cent interest in a 658 MW portfolio of wind and solar photovoltaic assets. This is 1 of 2 big acquisitions that Sembcorp has made in China. The other involved a 35 per cent interest in SDIC New Energy, which was completed in January this year. CGS-CIMB’s Lim expects these renewables portfolios of wind and solar assets to start showing in FY2022 earnings.

Not to be outdone is Sembcorp’s peer competitor Keppel Corp. Having also exited its rig business following huge losses as a result of oil’s previous prolonged slump, and reset itself as a green energy stalwart with a net-zero goal by 2050, Keppel last week snagged Singapore’s first electricity import licence from EMA. The project, the first multilateral cross-border electricity trade involving 4 Asean countries, and Singapore’s first renewable energy import, involves importing up to 100 MW of hydropower from Laos to Singapore via existing interconnections in Thailand and Malaysia.

The latest developments signal that these companies have constructively put their past behind them to salvage a win.