The weaker forecasts come after Sembcorp announced that it would incur an impairment of $212 million for its 49%-owned joint venture Chongqing Songzao Sembcorp Electric Power in 1HFY2021.
See also: Sembcorp launches first solar powered EV charging hub
Chongqing Songzao operates a 1,320MW mine-mouth coal-fired power plant in Chongqing with coal procured from its joint venture partner Chongqing Energy Investment Group (CQE)’s coal mines.
Following a government directive for coal mines in Chongqing to re-evaluate its coal mine operations in January 2021, CQE officially closed all its Chongqing-based coal mines.
As a result, Chongqing Songzao has had to procure coal from other provinces, says Sembcorp.
With the loss of its mine-mouth advantage and escalating market coal prices due to supply-demand imbalance, Sembcorp notes that Chongqing Songzao has been severely impacted by significantly higher coal costs.
Chongqing Songzao registered a loss in the second quarter of 2021 and is expected to record a net loss in 1HFY2021, as well as for the full year 2021, the company warns.
“Coal clouds profits,” CGS-CIMB’s head of research Lim Siew Khee entitles her Aug 2 report.
For more stories about where the money flows, click here for our Capital section
Despite the setback, Sembcorp expects its bottom line to remain “positive” in 1HFY2021.
CGS-CIMB has kept its “add” rating for the stock with an unchanged target price of $2.43.
As at 3.11 pm, Sembcorp was down 2 cents or 0.9% at $2.05 with 1.2 million shares changed hands.
