Sembcorp Industries Limited Outlines Its Big Game Plan for China

Sembcorp Industries Limited  (SGX: U96) held its 2016 fourth quarter earnings briefing in February. Among the key topics covered was the company’s game plan for China.

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

I dream of China

Sembcorp Industries planted its first seeds in China back in 2003. Over the years, the conglomerate’s utilities business in China has grown in strength. In 2016, the China operations of the Utilities segment delivered a record profit of almost $125 million, which represents around 36% of the segment’s total net profit for the year.

2017-04-06 SembCorp Industries China 1
Source: Sembcorp Industries earnings presentation

Sembcorp Industries’ chief executive officer, Tang Kin Fei, said:

“I think China did extremely well last year. We actually recorded — we actually achieved record profit from our China operation last year. We started our China business, for those who remember, from 2003, and you can see that the profits have been growing, initially gradually, and in the last few years, have been providing a sustainable income.”

Tang did note that 2016 included the divestment of the Yancheng coal-fired power plant as well as the income from the plant. This could make comparisons for 2017 tougher for the Utilities segment’s China operations.

2017-04-06 SembCorp Industries China 2
Source: Sembcorp Industries earnings presentation

Sembcorp Industries’ power capacity in China has ramped up impressively from 691 mega-watts (MW) in 2006 to over 3,000 MW in 2016. China’s contribution is significant for the conglomerate, given that its total power capacity stands at around 11,000 MW.

On the water and wastewater treatment side, Sembcorp Industries manages 2.3 million tonnes of water per day in China.

There is also a renewal energy business in China for the company. Tang said:

“Now, on the China power capacity, with the completion of the Anwen Chongqing plant and the renewable energy plant — renewable energy projects and new projects that we are going to put in place, the Huanghua 3 and Huanghua HNPG projects, we will have about over 3,000 megawatts of power there, in China.”

Tang also touched on the Changzhi water treatment plant in China:

“The Changzhi plant is substantially completed, except the customer is starting up the plant this year. We expect that they will be completing their startup by third quarter this year or second half of this year.

So I think when the customer starts up, we expect the income stream from this investment, which is substantial — if you remember, our investment in Changzhi is about RMB1 billion. So income will probably come in better in 2018 from the Changzhi project.”

We will have to see what 2017 brings for Sembcorp Industries’ China operations.

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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.