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Sembcorp Industries’ First Quarter Results: Utilities not Bagging Useful Profit

Ser Jing - Sembcorp Industries First Quarter Results, Utilities Not Bagging Useful Profit (pic)Sembcorp Industries (SGX: U96) released its first quarter results yesterday evening. The company’s quarterly revenue saw a slight 3.3% year-on-year decline from S$2.43b to S$2.35b but managed to eke out a 0.1% increase in earnings from S$176.7m to S$176.9m.

The company operates four different business units. Let’s take a closer look at how they fared and what investors can look forward to from them.

Sembcorp Industries’ Utilities business had a 13% drop in top-line for the quarter from S$1.44b to S$1.25b. The drop can be attributed to lower electricity sales in Singapore that overshadowed growth in the business’s China and Middle East operations. As a result, profit also followed suit with a 10% slide from S$99.0m to S$89.4m.

Regarding future outlook for Utilities, the company sees increased competition due to: 1) completion of Singapore’s liquefied natural gas (LNG) terminal later this year, and 2) an additional 2,400 megawatts of generation capacity from other operators that will come onstream this year and next.

There’s some better news though, as power assets acquired in China last year can add to the business’s earnings stream going forward, in addition to a woodchip boiler in Singapore that’s penned-down for completion in June.

Next up, we have the Marine business which is actually represented by Sembcorp Industries’ 60% stake in fellow Straits Times Index (SGX: ^STI) component, Sembcorp Marine (SGX: S51). The latter company released its first quarter results on Monday and posted an 11% increase in quarterly revenue from S$942m to S$1.05b. The share of earnings for Sembcorp Industries’ shareholders grew at a slower pace, clocking in at 5% from S$68.7m to S$72.0m.

The outlook for Sembcorp Marine will inevitably be tied to its net order book. It’s currently at S$13.6b, the highest it has ever been since 2005, and management expects it to grow as 2013 progresses. Shareholders in both Sembcorp Marine and Sembcorp Industries can also look forward to the start of operations in a new yard in Tuas in the second half of this year.

Urban Development is a very small business in the overall scheme of things for Sembcorp Industries. It brought in S$1.8m in revenue for this quarter, an 18% decline from last year. But, profit actually jumped by 42% from S$4.7m last year to S$6.7m. Management expects “better operating performance in 2013”.

Lastly, we have the Others/Corporate unit. Sales for the quarter fell slightly by 3% from S$51.7m a year ago to S$50.1m but profit more than doubled from S$4.3m to S$8.8m. The increase in profit for the unit was due to a higher contribution from its offshore engineering activities.

Sembcorp Industries’ President and Chief Executive Officer, Tang Kin Fei added: “In 1Q2013, we continued to position our company for long-term growth, in particular from our overseas investments. Our Utilities business achieved significant milestones in the execution and development of our pipeline of projects, which will grow our recurring income base.

We secured a 25-year power purchase agreement for our coal-fired power plant in India, and a 20-year water purchase agreement for our Fujairah 1 Independent Water and Power Plant in the UAE. Our UK operation was also selected as the preferred bidder to develop a new energy-from-waste facility on our Wilton International site on Teesside. Meanwhile, our Marine business achieved a net orderbook of S$13.6 billion with completions and deliveries stretching till 2019.

Sembcorp Industries was trading at $4.98 at yesterday’s close. At that price, shares of the company are selling for 12 times its last-12-months’ earnings and would fetch a dividend yield of 3% based on last year’s dividends.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.