How Is Sembcorp Industries Limited Positioning Itself For The Future?

Sembcorp Industries Limited (SGX: U96) is a Singapore-listed conglomerate with a market capitalization of S$5.4 billion currently.

The company, which is also one of the 30 stocks that make up the Straits Times Index (SGX: ^STI), has three business divisions: Utilities (which does energy, water, and waste management), Marine (which comes from a 61% stake in Sembcorp Marine Ltd (SGX: S51)), and Urban Development.

Sembcorp Industries’ Utilities business is largely Singapore focused and contributed some 55% of the segment’s total profit from operations of S$522 million in 2014. However, the company has taken many steps in 2015 to diversify its earnings base in the segment.

Let’s look at some of the major deals Sembcorp Industries has done for the Utilities segment in 2015 and how it will affect the company in the long term.

In September, Sembcorp Industries entered two major deals. The first was to sell its 40% interest in waste management outfit SembSita Pacific for a S$350 million profit. Sembcorp Industries’ chief executive, Tang Kin Fei, had given some comments on the reason for the sale when it was announced:

“Proceeds from the sale will provide us with additional resources to invest in businesses and markets with high growth potential, in line with our focus on the energy and water sectors.”

The comments from Tang makes it very clear to me what Sembcorp Industries intends to do in the future.

The second deal was for the development of a 426 megawatt (MW) power plant in Bangladesh. The construction of this asset is expected to be completed in 2018. In addition, Sembcorp Industries also signed a 22.5 year power purchase agreement (PPA) with the Bangladesh Power Development Board. This means that after the power plant is completed, it will likely provide Sembcorp Industries with a relatively steady stream of revenue.

Then, in December, Sembcorp Industries had signed another two deals. The first was for the development of a 225 MW gas-fired power plant in Myanmar. This will be completed in 2018 as well and also has a 22 year PPA which helps to ensure stable revenue going forward in a similar manner to the Bangladesh power plant.

The second, which was announced on the penultimate day of 2015, saw Sembcorp Industries form a 49:51 joint venture for a 1,620 MW coal power plant in China. 300 MW of that is already operational and the remaining 1,320 MW will be completed by 2017.

From the four deals mentioned above, it shows that Tang is deploying Sembcorp Industries’ capital in businesses and markets with high growth potential. This potentially sets the company up to do well in the long run. But of course, it is also dependent on whether the company can execute its projects well.

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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 Esjay own shares in Sembcorp Industries.