What Investors Should Know About SembCorp Industries Limited’s Latest Earnings

SembCorp Industries Limited (SGX: U96) reported its third-quarter earnings on Thursday. The reporting period was for 1 July 2014 to 30 September 2014.

SembCorp Industries is primarily in the utilities and marine business. It has operations in six continents worldwide.  The marine segment comes mainly from its 60% ownership stake in SembCorp Marine Ltd (SGX: S51). You can read more about SembCorp Industries here. Meanwhile, my fellow Fool Sudhan covered SembCorp Marine’s third-quarter earnings here.

Financial highlights

For the quarter, SembCorp Industries’ revenue rose to $3.1 billion, a 3.2% increase compared to the same quarter last year. Profit however, plunged 18.7% on a year-on-year basis. The fall in profit was attributed to a tougher comparison with the third quarter of 2013. Back then, SembCorp Industries had sold a 20% stake in Sembcorp Salalah Power and Water Company’s initial public offering and recorded one-off gains.

Cash flow from operations was a negative $462 million in the third quarter of 2014. With capital expenditures of about $487, SembCorp Industries had negative free cash flow of $949 million in the period.

The company’s balance sheet took on more debt as a result, ending 30 September 2014 with approximately $4.5 billion in borrowings. This is a big increase from the $1.8 billion in borrowings that was seen in the same quarter last year. SembCorp Industries still has significant cash resources – it has some $2.2 billion in cash and equivalents at the end of the third quarter of 2014 – but its balance sheet has weakened considerably considering that it was in a net cash position a year ago.

Operational highlights

SembCorp’s revenue increase was driven by both its Utilities and Marine segments. The Utilities segment benefited from higher gas offtake and steam demand from its Singapore operations. Meanwhile, the Marine segment did better due to higher revenue recognition for rig building and offshore and conversion projects.

On the profit side, the Utilities segment’s bottom-line decreased by 34% mainly due to a tougher comparable quarter last year (due to the Sembcorp Salalah Power and Water Company IPO as mentioned above). Excluding one-off items, the Utilities business gained 10% in net profit growth.

SembCorp Industries’ Chief Executive Office, Tang Kin Fei,provided the statement below on the third-quarter results:

“In the quarter, we continued to achieve milestones in positioning Sembcorp for long-term growth. In China, our Utilities business signed a conditional joint venture agreement for two power plants in Chongqing and in India, commissioning has commenced for the first of two units of our 1,320-megawatt Thermal Powertech power plant. Meanwhile, our Marine business continued to secure significant new contracts, building up its orderbook.”

Looking forward, SembCorp Industries is looking for an increased contribution from its overseas Utilities business. Hopefully, this will offset potentially weaker performance from its Singapore-based Utilities operations as competition in the Singapore power market is expected to be intense.

The Marine business has a net orderbook of $12.6 billion with completion and deliveries stretching into 2019. This is a decrease from the figure of $13.5 billion seen in the third quarter of 2013. Given that the order book represents future revenue for the Marine segment, investors might want to keep a close eye on the growth of the orderbook over time.

Foolish summary

At its closing price of $4.54 yesterday, SembCorp Industries traded at around 10.5 times trailing earnings and has a historical dividend yield of 3.7%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.