Sembcorp Industries Limited: 1 Blue Chip Company That’s Exposed To An Important ASEAN Economic Development

The ASEAN Economic Community (AEC) came into effect at the end of 2015. It could be a formidable economic force.

The Association of Southeast Asian Nations (ASEAN) has 10 member countries – including Singapore – that had a collective population and gross domestic product of 622 million and US$2.6 trillion, respectively. The combined GDP of the ASEAN states makes it the 7th largest economy in the world.

Although the implementation of the AEC could be tricky, it could also break down trade barriers by integrating the Southeast Asian region into a single market and production base. The AEC also has other aims, such as boosting the competitiveness of Southeast Asia, ensure low disparity in development across ASEAN, and enhance ASEAN participation in the global economy.

There are many companies in Singapore’s stock market that have business in other ASEAN member states and are thus exposed to the important AEC development. One such company is the blue chip firm, Sembcorp Industries Limited (SGX: U96).

Sembcorp Industries is a conglomerate with two important businesses. It builds oil rigs and vessels, and provides electricity and water-treatment services to both industrial and municipal customers. The latter is important for the developing economies in ASEAN.

Take Myanmar for instance, which joined ASEAN in 1997. The country currently has a national electrification rate of just 30%, meaning to say that a large portion of its population do not have easy access to electricity.

In late 2015, Sembcorp Industries had inked a contract to develop the largest gas-fired independent power plant in Myanmar. It marks the company’s first-ever project in the country.

The US$300 million power plant will have a power capacity of 225 megawatts and is expected to be completed in 2018. Upon completion, the plant will supply power to Myanmar under a 22-year agreement. Sembcorp Industries has an 80% stake in the project.

For perspective, Sembcorp Industries ended 2015 with total assets of S$21.6 billion, so the power plant in Myanmar is not a huge project. But, the contract represents the company’s first step in Myanmar’s door, at a time when ASEAN is looking to boost economic cooperation and development.

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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 Ong Kai Kiat doesn’t own shares in any companies mentioned.