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Sembcorp Industries Limited’s Latest Earnings: 9 Quick Things Investors Should Learn From Management

Sembcorp Industries Limited (SGX: U96) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their quarterly earnings presentations.

In late October this year, Sembcorp Industries released its 2016 third quarter earnings. I recently spent time going through the webcast for the earnings presentation and noted down nine useful things for investors.

As a quick background, Sembcorp Industries has three business segments, namely, Utilities, Marine, and Urban Development & Others. The former two make up the lion’s share of Sembcorp Industries’ business. It is worth noting that the conglomerate’s Marine business stems from its majority ownership of Sembcorp Marine Ltd  (SGX: S51). You can read more about Sembcorp Industries in here.

With that, here are my notes:

  1. Koh Chiap Khiong, Sembcorp Industries’ chief financial officer, kicked off the meeting with an overview of the business. Starting with the utilities segment, Koh noted that net profit was down 16% for the first nine months of 2016. He noted that net profit would have been up 11% if significant items recorded last year were excluded. Overseas profit grew 20% during the same timeframe, coming in at $200.6 million.
  2. Still on the Utilities segment, Koh said that overseas profit benefited from good results from China, India, and the Middle East. On India, Koh said that the Sembcorp Industries Thermal Powertech Corporation India Ltd (TPCIL) plant had an average load factor of 80%. Another Indian thermal facility, SembCorp Gayatri Power Ltd (SGPL), is expected to have its Unit 3 kick off its commercial operations date (COD) in the fourth quarter of 2016. SGPL’s Unit 4 is targeting to have its COD early next year.
  3. Koh also said that the Chongqing plant in China is progressing well and its expected COD is in the fourth quarter of 2016. With the activities in China and India, it sounds like a busy fourth quarter for Sembcorp Industries.
  4. Moving on to the beleaguered Marine segment, Koh said that conditions are still very challenging. Net profit was down 82% to $27.3 million in the first nine months of 2016. Koh said that the focus is on liquidity, cash, and balance sheet management. He added that manpower requirements were being managed alongside changing needs.
  5. Over at the Urban Development segment, Koh said that net profit was down 66% to $6 million for the first nine months of the year. He reminded listeners to expect lumpiness for this segment of the business. Koh added that momentum is healthy in Vietnam and there was a healthy orderbook for the VSIP (Vietnam Singapore Industrial Park) and in Chengdu.
  6. Koh then moved on to detailed financial figures for Sembcorp Industries, starting with the Utilities segment. From a geographical standpoint, Koh said that net profit from China was up 32% for the first nine months of 2016. Operations in India also went from a loss last year to $21 million in profit for the first nine months of the year. The segment’s Singapore operations, though, remained weak, recording a 7% year-on-year profit decline for the same nine month period.
  7. Koh provided an update on the product sub-segments of the Utilities segment as well. He said that the energy sub-segment contributed 58% of the segment’s net profit. Water and on-site logistics & solid waste management accounted for 26% and 16%, respectively.
  8. Sembcorp Industries ended the third quarter of 2016 with a net debt position of S$6.6 billion, an increase from the S$5.2 billion recorded at the end of last year. The interest coverage also fell to 3.4 times, down significantly from the 6.6 times seen a year ago. As a reminder, Koh said that India’s projects will be highly geared in the first few years of operations, and that the interest cover ratio will improve when the debts are paid down progressively.
  9. On Sembcorp Industries’ outlook, Koh said that the Singapore utilities business will continue to face intense competition in the power market. SGPL will be working to secure a long term power purchase agreement (PPA). Elsewhere, the oil and gas industry remains subdued and uncertain.

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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.