[SINGAPORE] Maybank equity analyst Krishna Guha downgraded his rating on Sembcorp Industries to “hold” on Monday (Aug 11), with a reduced target price of S$6.40 from S$7.10 after the industrial player posted a drop in earnings last week.
The analyst said Sembcorp appeared “fully valued” and saw downside risks to its earnings.
Sembcorp posted a 1 per cent drop in net profit on Friday (Aug 8) to S$536 million amid lower turnover from its gas business, though it raised its interim dividend to S$0.09 per share from S$0.06.
Its shares dropped 13.9 per cent on Friday after the news, tumbling another 3.1 per cent to S$6.51 in the initial few hours of trading on Monday.
Maybank lowered the company’s 2025-2026 financial year core profit by 2 to 5 per cent, applying a lower earnings multiple of 12 instead of 14. However, the report noted that core income remained “resilient” on the back of new operational capacity in renewables.
The analyst pointed out that Sembcorp’s first-half turnover drop of 8 per cent year on year was driven by a 10 per cent drop in gas and related services turnover. This was due to lower spreads of renewed contracts in Singapore, higher cost of green power imports and the absence of revenue from Sembcorp Environment, he added.
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Sembcorp’s drop in turnover was partially offset by a 16 per cent turnover rise in renewables, led by new capacity and higher wind resources in India even as it was partially offset by increased curtailment and lower tariffs in China.
Its increased stake in Senoko Energy, which now stands at 50 per cent, and higher land sales in Vietnam and Indonesia also meant that the share of profit from associates and joint ventures rose 35 per cent year on year.
On Friday, Sembcorp’s chief financial officer Eugene Cheng pointed out that a strong Singapore dollar resulted in a forex impact of S$23 million on earnings.
Strengthening recurring earnings, risks to gas sales
Maybank’s analyst pointed out that Sembcorp signed multiple power purchase agreements in the first half of 2025, totalling 120 megawatts, with data centre, commercial and industrial customers.
This meant Sembcorp’s industrial capacity grew to 13.8 gigagwatts in the first half, up from 13.1 before. Another 1.1 gigawatts is set to be installed in the second half of the year.
The analyst said that the company’s debt metrics were stable at a net debt to EBITDA ratio of 4.6, compared to 4.5 from the year ago period.
Nevertheless, the 2 to 5 per cent cut in core profit is to factor in lower revenue from gas related sales, he stated.
Sembcorp said it expects its H2 earnings from the gas business to remain “resilient”, despite lower spreads for contracts renewed since the second half of 2024.
Yet, the Maybank analyst said continued risks to Sembcorp include lower wholesale energy prices in Singapore, an imbalance in the demand and supply of renewable energy in China and India as well as impairment in renewables investments due to policy changes.
Other risks include the implementation of centralised natural gas purchases for power generation in Singapore and higher capital expenditure for transmission and storage, especially for renewables, he said.
“While earnings are resilient, we see downside risks from repricing of contracts in Singapore,” stated the analyst. That, as well as policy and pricing changes in China and Vietnam combined with tariff overhangs may “slow down capacity expansion”, he added.
Sembcorp CEO Wong Kim Yin noted on Friday that the US tariffs, which went into effect the same day, have created uncertainty and “somewhat tempered customers’ expansion plans”.
“With a strong balance sheet, strong cash flow and strong Singdollar, this is shopping season,” added Wong at the earnings briefing last week.
