To support its own share price, Sembcorp, since late August, when many investors were selling the shares after the 1HFY2025 results, has bought back $12.5 million worth of shares at an average of $6.11 each. Before the drop following the results, Sembcorp was trading at as high as $7.93.
In another positive indication, the company's management is confident of paying out at least 23 cents per share in dividends for "at least" the next five years, which will imply a yield of around 3.6% based on Sembcorp's Oct 23 closing price of $6.45.
The company, with its portfolio of power-generating assets across the region, is benefitting from growing demand for power from large customers, which typically lock in long-term contracts.
For example, in 2023, US semiconductor firm Micron, which has extensive manufacturing presence here, signed a deal to buy power from Sembcorp for 18 years.
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As Loh observed, under the second data centre "call for action" by Singapore, some 300 MW in additional energy will be needed. "Sembcorp appeared quietly confident of being able to supply the winner, given its ability to supply green power," he says.
In addition, there's a chance that Sembcorp will also be asked to supply Micron's new test and assembly facility here, and potentially, a second fabrication plant by 2028 to 2029. To meet these additional needs, Sembcorp may need to build another 600 MW plant, says Loh.
Apparently, Sembcorp is constantly on the lookout for growth opportunities outside Singapore as well. According to a recent Bloomberg report, the company is in talks to take a stake of between 25 and 30% in a Thai independent power producer, B.Grimm.
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"The potential acquisition is arguably in line with Sembcorp's long-term vision to become Asia's leading sustainable energy and utilities platform in Asia," says Loh, adding that if this deal manifests, it will expand Sembcorp's presence in Asean beyond Vietnam and Indonesia.
What is more certain is that Sembcorp had earlier announced it had received conditional approval to import hydro power from Sarawak via a 700-km-long undersea cable. Besides taking a minority stake in the cable that is likely to cost $3.5 to 4 billion in total, Sembcorp's role is to be the offtaker of between 1 and 1.2 GW.
Nonetheless, the project will realistically commence in the middle of the 2030s.
Thus, in the foreseeable future, Sembcorp's own new 600MW H-class gas turbine power plant will come onstream in the current quarter and will be fully ramped up and contribute to earnings from 1QFY2026.
"The company stated that given the efficiency of the new plant, it will be used to service its long-term power purchase agreements and thus Sembcorp's anticipates profit margin expansion," says Loh.
Also, Sembcorp completed the acquisition of additional interest in Senoko Energy in June, bringing its equity share to 50%.
As indicated by Loh, 20% of Senoko's 1,200MW in operational capacity is undergoing contracting, and another 50% will be going through this process in 2HFY2026.
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The company expects spreads to come down overall but this was expected at the time of the initial acquisition last November.
Sembcorp expects Senoko to generate earnings of over $200 million on a 100% basis in 2026, which compares favourably with the $168 million price it paid for this 50% stake.
Meanwhile, Sembcorp faces "minimal" re-contracting risks going forward. Loh says that the weighted average duration of Sembcorp’s energy contracts in Singapore is 12 years and thus it has guided for its medium- to longer-term contracts to only see renewals from 2030 onwards.
"Overall, Sembcorp expects its contracted portfolio to be stable with about 3% of its 0-5 year contracts needing to be re-contracted in 2026," says Loh.
Besides the expected earnings upside from the new power assets, a potential catalyst for Sembcorp is an IPO of its energy portfolio in India in the second half of next year, says Loh.
Sembcorp Industries shares, ahead of the lunch break, changed hands at $6.54, up 1.24% for the day.
