The news
SCI financial results are expected to be materially higher for 1H22 vs. last year, driven by the Conventional Energy segment.
Contrary to a report that Myanmar’s central bank has ordered a halt on repayment of foreign loans, its subsidiary in Myanmar has not received such a directive. It has also received prompt payment from its offtaker and continues to operate its Myanmar power plant.
The Positives
+ Average USEP prices up 239% YoY or 9.8% HoH to lift SCI’s 1H22 Conventional Energy. The global energy crunch since September 2021 lifted SCI’s Conventional Energy segment in 2H21. The conflict in Ukraine at the beginning of the year has further exacerbated the risk of disruptions in oil and gas. As a result, average USEP prices for 1H22 surged to S$324/MWh, higher than the S$295/MWh average in 2H21 and spark spreads have increased to 6.3 YTD (Figure 1) as average USEP prices have moved ahead of HSFO in the last nine months.
+ Tariffs for power in India’s Tamil Nadu and Gujarat rose ~88% YoY in 1H22. Based on data from IEX, tariffs for power at Tamil Nadu and Gujarat rose to ~6.36Rs/kWh from ~3.39Rs/kWh from the same period last year. The higher tariff was driven by high global oil prices and higher temperatures in the country. The International Energy Agency (IEA) recently revised upward India’s electricity demand to 7% from negative previously in light of the intense heatwave in the country.
On the back of this, we revise FY22e Conventional Energy revenue up marginally from $8.6bn to $8.8bn to account for better spark spreads for Sembcorp Cogen and India (Figure 3).
+ On track to building up its green energy portfolio. SCI’s gross renewables capacity in operation and under development globally now stands at 6.8GW in 1H22 from 6.1GW as at end-2021 (Figure 2). This is ahead of our FY22e target of 7.3GW, accordingly, we revise our FY22e gross renewables capacity to 7.6GW on account of the Group’s aggressive build up of its renewables portfolio. We believe the company is on track to achieve its plans of increasing its renewable capacity to 10GW by 2025. We see the company’s transition toward green energy as an important driver of its re-rating.
The Negatives
– Headwinds in China property market to put a drag on Group’s Urban development business. China’s property market has weakened sharply in the past year as a result of a government clampdown on excessive borrowings by developers, and a Covid-19 induced economic slowdown (Figure 4). We believe this will hurt the Group’s land sales in China, though the impact is not expected to be significant as China account for just 6% of the Group’s total saleable land.
Outlook
We expect the group to continue with its transition to sustainable solutions and sustainable development. Despite its ambitious growth plans, it will not require any equity fund-raising, relying entirely on internal sources.
The Conventional Energy segment continued to perform well in the first half of this year as global energy markets rose in tandem with commodity prices. For the rest of 2022, we expect this segment to be supported by energy markets and the continued uncertainty brought about by the Ukraine conflict.
However, we expect the slowdown in the Chinese property market to offset some of the growth from the Conventional Energy and Renewable Energy segment.
The Group continues to actively seek deals in India, China and the UK by leveraging its partnerships and platforms for their acquisitions.
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy- and sell-side. As an institutional fund management analyst, he sat on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018.
He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.
