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5 Quick Things Investors Should Learn About SembCorp Industries Ltd

SembCorp Industries Ltd (SGX: U96) is part of a group of cool companies in Singapore which shares webcasts of their quarterly earnings presentations (the link for SembCorp Industries’ latest webcast is here).

SembCorp Industries’ business is mainly made up of its Utility and Marine segments. The latter in particular, is represented by the company’s majority ownership stake in rig builder SembCorp Marine Ltd  (SGX: S51).

You can read more about SembCorp Industries here and catch up with the firm’s most recent quarterly results here.

Powering up?

Below are five quick and useful bites of information that I learned from listening to SembCorp Industries’ recent first-quarter earnings webcast:

  1. For some background, a vesting contract requires SembCorp Industries to produce a specified quantity of electricity (vesting contract level) at a specified price (vesting contract hedge price). For the utility segment, vesting contract levels for its Singapore power operations are expected to fall from 30% in the first half of 2015 to 25% in the second half of 2015. Furthermore, there was a negative spark spread (difference between the market price of electricity and its cost of production) in the reporting quarter. In all, there could be more downside in revenue in the second half of the year.
  2. On the other hand, there were brighter spots in SembCorp Industries’ overseas utilities business. The company reported that the first Thermal Powertech Corporation India (TPCIL) 660 mega-watt (MW) unit in India has commenced operations but its results have not been included in the reporting quarter’s report. In response to a question from an analyst, Chief Executive Officer Tang Kin Fei mentioned that it would be better to expect a cleaner set of results from TPCIL from the next financial year onwards owing to the teething problems that new projects often face. Group Chief Financial Officer Koh Chiap Khiong added that only one plant is operational now and it will bear the full depreciation of the TPCIL project until the second unit becomes operational (excepted at the end of the third-quarter).
  3. Elsewhere, SembCorp Industries has also received approval to expand capacity of its wind power operations in China by another 150 MW. Furthermore, SembCorp Industries is looking to secure a 22 year power agreement with the Myanmar Electric Power Enterprise. The US$300 million project is expected to start commercial operations in 2017.
  4. Speaking on SembCorp Industries’ recent 60% stake in Green Infra, a renewal energy company from India, Koh mentioned that the results for the stake was consolidated into SembCorp Industries in February. He also shared that the results will be seasonal in nature, given the low wind conditions from October to April. On the expectation of earnings distribution, Koh mentioned that typically, 25% of the earnings would come from the low wind season with the rest coming in the high wind season. As such, we may want to focus on the full year results from the India operations in this case and not worry too much about the quarterly developments.
  5. As mentioned in a prior article, SembCorp Industries reported negative free cash flow for the first quarter of 2015. The fall in cash flow from operations stemmed from a sizable outflow in working capital due to SembCorp Marine’s ongoing projects.

Foolish takeaway

To buy and hold a company’s shares for the long term also means keeping up with developments in the firm’s business.

The access to management teams via webcasts of earnings presentations gives the Foolish investor a fair chance to judge for themselves whether they’d like to be invested alongside those teams. It also helps us put together a more complete thesis around a company and keep up with developments in its industry.

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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.