The Good And The Bad: What Investors Should Know About Sembcorp Industries Limited’s Latest First Quarter Earnings

Sembcorp Industries Limited (SGX: U96) is a conglomerate with three major business segments: Utilities; Marine; and Urban Development & Others. The Marine segment’s contribution mainly comes from Sembcorp Industries’ majority ownership stake in Sembcorp Marine Ltd (SGX: S51).

Last week, Sembcorp Industries released its 2017 first quarter earnings. There are both positive and negative takeaways from the company’s latest earnings that investors may want to learn about. Let’s take a look, starting with an overview of the numbers.

1 . The overall numbers

The following’s a table showing some important items from Sembcorp Industries’ income statement for the first quarters of 2017 and 2016:

Source: Sembcorp Industries first quarter 2017 earnings presentation

It’s obvious that Sembcorp Industries’ first quarter in 2017 was better compared to a year ago. Both revenue and earnings per share came in 13% higher.

2. The positives

Firstly, the Utilities segment showed strong revenue growth of 47% in 2017’s first quarter. The segment’s performance was driven by higher turnover in Singapore, India, and recognition of revenue from the construction of a project in Myanmar.

Secondly, the Urban Development segment reported a huge jump in net profit from $1.2 million in 2016’s first quarter to $37.2 million mainly due to its Chinese associate reporting higher land sales.

3. The negatives

Firstly, 2017 continues to be challenging for the Marine segment of Sembcorp Industries. In the first quarter, the segment’s revenue fell by 17% year-on-year due to lower revenue recognition for rig building projects resulting from customers’ delivery deferment requests and lower repair businesses.

Secondly, the Utilities segment’s net profit is down when compared to the same quarter a year ago despite the surge in revenue. The segment’s second thermal power plant in India, SGPL, was “adversely affected by weak spot and short-term power tariffs due to a lack of long-term power purchase agreements being available in the market.”

Thirdly, Sembcorp Industries’ balance sheet had deteriorated with its net debt position increasing from $6.58 billion a year ago to $7.73 billion.

In all, Sembcorp Industries has enjoyed a better start in 2017 after a challenging 2016, although its Marine segment continues to struggle.

The company appointed a new CEO, Neil McGregor, on 1 April 2017 after Tang Kin Fei stepped down at the end of March. McGregor is undertaking a complete review of the businesses and strategic direction of Sembcorp Industries. Investors may want to pay attention to the outcome of the review to gain a better perspective on the company’s 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 Lawrence Nga doesn’t own shares in any companies mentioned.