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6 Quick Things Investors Should Learn About Sembcorp Industries Limited

Sembcorp Industries Limited (SGX: U96) is one of the cool companies in Singapore that shares webcasts of their earnings presentations (the link for Sembcorp Industries is here).

In late February, the company released its 2016 fourth quarter and full year earnings. I had recently spent time watching the webcast of Sembcorp Industries’ earnings presentation and noted down six things investors should know.

As a quick background, Sembcorp Industries has three business segments, namely, Utilities, Marine, and Urban Development & Others. The former two are by far the most important for Sembcorp Industries. It’s worth noting that the conglomerate’s Marine business stems from its majority ownership of Sembcorp Marine Ltd (SGX: S51).

With that, here are my notes:

1. Koh Chiap Khiong, Sembcorp Industries’ chief financial officer, ran through the numbers for the business during the presentation. Revenue from the Utilities segment was down by 3% for 2016. Koh said that it was due to lower high sulfur fuel oil prices that was partly mitigated by higher sales from India.

2. Koh also said that the Utilities segment’s profit from operations rose 27% excluding exceptional gains. In terms of net profit, the Utilities segment recorded 4% growth to S$345.5 million in 2016, again excluding exceptional gains. Sembcorp Industries benefited from China and the Middle East, which recorded S$124.8 million and S$56.5 million in net profits, respectively.

3. Koh added that overseas operations contributed to 63% of the Utilities segment’s net profit. From a sub-segment perspective, Energy remains the higher contributor in the Utilities segment with 58% of the segment’s net profit. Water accounted for a quarter of the Utilities segment’s net profit.

4. Moving on to the Marine segment, Koh said profit from operations were higher in 2016, mainly due to write-downs taken in 2015. There were no provisions taken in 2016. Net profit was S$48.3 million in 2016, up from the loss of S$176 million recorded last year. Over at the Urban Development & Others segment, Koh said the net profit in 2016 was comparable to 2015’s.

5. Sembcorp Industries ended the fourth quarter of 2016 with a net debt position of S$7.4 billion, an increase from S$5.23 billion at the end of 2015. The conglomerate’s interest coverage ratio fell to 3.3 times in 2016, down significantly from 2015’s 7.2 times. As a reminder, Koh said that Sembcorp Industries’ projects in India will be highly geared in the first few years of operations, and that the interest cover ratio will improve as the borrowings are paid down progressively.

6. On the outlook, Koh said that market conditions are expected to remain challenging in 2017 for Sembcorp Industries. China hit a new record in profit for 2016, but is expected to post lower results in 2017. Meanwhile, the conglomerate’s utilities operations in Singapore will continue to face intense competition in the power market. Elsewhere, the oil and gas industry remains challenging with stiff competition. But, Sembcorp Marine remains positive about its medium to long term future.

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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.