Sembcorp Industries Limited’s Latest Earnings: 3 Key Things to Know About its Utilities Business

Sembcorp Industries Ltd (SGX: U96) hosted its second-quarter earnings briefing last week.

Sembcorp Industries has three business segments, namely utilities, marine, and urban development and others. The first two are by far the most important. The conglomerate also has majority ownership of Sembcorp Marine Ltd (SGX: S51) which falls under the marine segment.

Let’s take a look at what was shared on its utilities segment.

Healthy sales

Source: Sembcorp Industries’ earnings presentation

Utilities sales rose 61% in the first-half of 2017, reaching $2.9 billion. Sembcorp Industries attributed the increase to higher contribution from India, together with construction revenue from the Myingyan (its Myanmar power plant) and Sirajganj Unit 4 (its Bangladesh power plant).  

Sembcorp Industries’ Chief Executive Officer, Neil McGregor, said:

“In first half 2017, the Utilities business continued to provide the group with a strong income base despite challenging market conditions. The business is the largest profit contributor to the group and contributed 53% of the group’s net profit in first half 2017.”

Profit, though, did not keep pace with the revenue increase.

Lower profits

Source: Sembcorp Industries’ earnings presentation

Sembcorp Industries continues to be hit by weakness in its Sembcorp Gayatri Power Limited (SGPL) unit. McGregor said:

“… SGPL, which commenced operations in February 2017, was successfully refinanced in the first half of 2017, enabling a reduction of interest expense going forward. This incurred a cost of $39.1 million.

Excluding this refinancing cost, Utilities’ net profit would have been $137.4 million, 8% lower than the first half 2016 due to weak performance from SGPL.”

Within the utilities segment, the energy segment posted 34% lower profits in the first-half of 2017. The water segment offset some of the declines, but overall, Sembcorp Industries’ utilities profit was down 8% year-on-year (before exceptional item).  

On a positive note, Sembcorp Industries’ Chief Financial Officer, Koh Chiap Khiong, said:

“Utilities’ net profit before SGPL’s refinancing cost was $76.9 million in 2Q 2017. It grew by 3% compared to $74.6 million in 2Q 2016.”

The profit picture might be clearer when we look at it from a geographical perspective.

A mixed bag of profits 

Source: Sembcorp Industries’ earnings presentation

First off, the positives. From Koh’s comments:

“Singapore operations posted an improved performance on higher contribution from the centralized utilities and gas businesses.

Higher contribution from our rest of Asia arose mainly from service concession revenue from our Myingyan and S4 [Sirajganj Unit 4] project power plants in Myanmar and in Bangladesh.

However, China and India dragged down results overall. Koh said:

“In China last year, we had contribution from Yangcheng. This was a concession agreement that was terminated in last year October. This accounted for the reduction in China’s contribution this year. In addition, the coal price was also higher in this first half of 2017.

SGPL achieved commercial operation in February 2017. The asset has performed well, achieving a plant load factor of 73%, but performance was affected by weak spot and short-term power tariffs. However, our first thermal plant, TPCIL, and our renewable energy, SGI, achieved good growth in net profit, contributed $27 million and $9 million, respectively.”

Both China and India had major declines in profits. While there were better performances in TPCIL and SGI, they weren’t enough to stop the conglomerate’s Indian operations from posting losses for the first-half.

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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.