Can SembCorp Industries Limited Turnaround Its Fortunes The Near Future?

2015 was a year to forget for utilities and marine engineering conglomerate Sembcorp Industries Limited (SGX: U96). In that year, the company saw its revenue fall by 12% and profit by 31%.

Unfortunately, Sembcorp Industries had experienced another tough quarter in the first three months of 2016.

Revenue in the period fell by almost 19% while the bottom-line was sliced by almost a quarter. Furthermore, Sembcorp Industries ended the quarter with a net debt position of $6.6 billion on its balance sheet. In light of the turbulence that SembCorp Industries is finding itself in, a question was asked by analysts during a recent conference call on the conglomerate’s outlook.

Tang Kin Fei, Sembcorp Industries’ chief executive, replied:

“Well, I think as we said in the outlook statement. Look at our performance, our utilities business or ex-marine business continue to perform well, compared with the first quarter last year. We also made a statement in the outlook statement that although there is a global downturn in the oil and gas sector and the competition in the Singapore power market, we expect to continue to be the same in 2016.”

Tang could be referring to the slide below in his comments:

2016-05-06 SembCorp Slide Net Profit
Source: Sembcorp Industries earnings presentation

With reference to the slide, Sembcorp Industries’ ex-Marine business made up 72% of the total net profit in the first-quarter of 2016, up from 57% a year ago. In the first three months of 2016, net profit for the Utilities segment was unchanged, while net profit for the Marine segment fell by 48%.

Tang also expressed confidence on Sembcorp Industries’ outlook over the next two years, pointing out:

“We expect to create and deliver long term value and growth through our sound strategy and strong capability.

As you can see we have many projects that we will be completing by end of this year or early next year. So, all these projects that are completing will add on to the revenue stream from 2017 to 2018. So, we expect to continue to perform well over the next couple of years. 2017 and 2018 in particular.”

Tang is most likely to be referring to the slide below which shows the development pipeline of Sembcorp Industries’ projects in India, China, Singapore, and the UK:

2016-05-06 SembCorp Industries Projects
Source: SembCorp Industries earnings report

To be sure, it’s not a given that SembCorp Industries will immediately benefit from the completion of the projects above. The company’s Thermal Powertech Corporation India (TPCIL) power plant in India, which began operations last year, has had its share of teething problems. The TPCIL plant recorded a $1.5 million loss in 2015, mainly due to an unexpected flood in the area. Additionally, one unit of the TPCIL plant had to be shut down due to a technical fault in April.

Investors will have to monitor how Sembcorp Industries’ new projects will contribute to the company’s bottom-line over the next two years.

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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.