In Chew’s view, Senoko has several attractive factors including having a direct gas pipeline from Malaysia, its location near energy intensive semiconductor facilities as well as land for a new gas power plant.
Other factors behind the analyst’s positivity on Senoko is its room to lower Sembcorp’s cost of debt and an increased proportion of long-term contracts with gas from Sembcorp. Of the 2.64GW registered capacity, 800MW is reserve capacity, Chew notes.
As such, the analyst is expecting Sembcorp’s earnings for the 1HFY2025 ended June 30 to increase due to the expansion in renewable capacity, the absence of plant maintenance costs in the 1HFY2024, the contributions from Senoko Power as well as land sales in Vietnam.
Sembcorp’s growth in the 2HFY2025 will also depend on the outcome of the reciprocal tariffs, where the 90-day pause will expire on July 9.
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“Following the April 2 tariff announcement, land sales in Vietnam and Indonesia would have been more cautious. Electricity generated year-to-date (ytd) May 2025 is down 1.4% y-o-y. It may place margin pressure on electricity spreads,” says Chew.
In addition to his upgrade, Chew has increased his earnings estimates by 5% to $1.13 billion due to the Senoko acquisition. He has also lifted his EV/ebitda from 8 times to 9 times in line with peer valuations. Sembcorp’s association and deferred payment notes (DPN) are valued at book value.
“Demand for power in Singapore will be driven by new electric vehicles, data centres, and semiconductor electricity. With more stable earnings and operating cash flow, we expect the dividend payout ratio to increase from 40% to 50% in FY2025,” he writes.
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Chew’s new target price of $8.10, raised from $7.10 previously, represents a total return of 23% based on Sembcorp’s share price of $6.83 as at the analyst’s June 30 report.
Shares in Sembcorp closed 2 cents higher or 0.29% up at $6.85 on June 30.
