Here’re the Countries with the Most Growth Potential for SembCorp Industries Limited

Utilities and marine engineering conglomerate Sembcorp Industries Limited (SGX: U96) has seen better times.

The business and shares of its major subsidiary SembCorp Marine Ltd (SGX: S51) have been dragged down by the potential bankruptcy of a major customer, Sete Brasil. Meanwhile, the conglomerate also cut its dividend recently. All told, Sembcorp Industries has seen its shares shrink by over 30% in value since the start of 2015.

But beyond its troubles, there may be areas in which SembCorp Industries can grow as well.

In a previous article, I had noted areas of growth for SembCorp Industries’ utilities business segment. During the company’s most recent earnings briefing, an analyst had asked an insightful question: What countries offer the most potential for future growth for the company?

Tang Kin Fei, the chief executive of Sembcorp Industries, gave his take:

“I think if you look at the location that we are operating. As you can see this geographical map, I think you know that China demand has come down so there is a surplus of thermal power. Unless you are very near to the mine mouth, I think the spreads will be a problem.”

Tang was referring to this particular slide:

2016-03-02 SembCorp Industries Presentation
Source: SembCorp Industries’ earnings presentation

He added his thoughts around the different challenges and opportunities that are in different countries:

“We are very careful in investing in any new thermal plant in China. For the ASEAN region, we are actively pursuing power projects in Indonesia, they are coming up with many projects in Indonesia, we are pursuing projects there. In Myanmar, I think you already know, we are in Mandalay.

We are also looking at opportunity in India. Very soon, when we have four units operating, it will generate a lot of good cash-flow for us. So, if there is good opportunity at a low price and stranded assets, we will look at. But it must meet our investment expectation.

And of course, in between India and Myanmar, we have Bangladesh. So, I think you also know that we signed a MOU [memorandum of understanding] to develop a coal fire power plant in a place called Matarbari, which is quite far from Dhaka. So, these are things we are still pursuing. But basically within the bubbles we are operating. For example, in the Middle East, we are in UAE and Oman. So, we are very careful in selecting where we are. We don’t want to be in too many areas where we cannot manage.”

For perspective, SembCorp Industries was awarded a gas-power plant project in Mandalay, Myanmar in April 2015. The plant is expected to be completed in 2017 and will produce 225 megawatts (MW) of power. Meanwhile, SembCorp Industries is also planning to develop a 426 MW power plant in Bangladesh. As Tang noted, the company has also signed a MOU to build a 700 MW power plant in Matarbari, Bangladesh.

The most visible project right now may be Sembcorp Industries’ Thermal Powertech Corporation India (TPCIL) plant in India. The power plant recently secured its second long-term power purchase agreement (PPA) with the Telangana Power Distribution companies. Under the agreement, 570 megawatts (MW) of power will be sold for a period of eight years. Together with an earlier agreement, the TPCIL power plant has secured long-term agreements for over 85% of its total net generating capacity.

As investors, we should be looking at how these projects can contribute to SembCorp Industries’ future cash flows.

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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.