Besides Sembcorp, the other five such companies are Hong Kong-based power generator CLP Holdings; multi-infrastructure player CK Infrastructure Holdings; China Yangtze Power, which is behind the Three Gorges; wind power leader China Longyuan Power Group Corp, and Korea's Hanwha Solutions.
HSBC has kept its "buy" call on all these counters along with the same target prices.
HSBC likes Sembcorp given that a high proportion of its profit is backed by long-term purchasing power agreements within Singapore of between 10 and 18 years and a fixed dollar gross profit.
"We like Sembcorp given its strong presence in the Singapore power market and it is expanding into India as well. We see increase in consensus estimates and value crystallization opportunities as key catalysts for the share price," says analyst Rahul Bhatia, who has a target price of $6.98.
See also: UOB Kay Hian downgrades DBS to ‘sell’, OCBC to ‘hold’ on expected trade slowdown
Downside risks include lower-than-expected growth in its renewable energy business; further recognition of impairments by the company, specifically in Myanmar and Bangladesh; higher-than-expected impact on financial expenses, given the high net gearing and rising interest rate environment; and an uncertain timing or non-value accretive capital recycling.
Sembcorp shares closed at $5.79 on April 7, down 9.67%, versus the 7.46% drop in the Straits Times Index.
