Sembcorp Industries has given analysts, shareholders and perhaps even environmentalists something to cheer about. Starting with its financials, Sembcorp’s adjusted earnings for FY2024 ended Dec 31, 2024 grew 7% y-o-y to beat consensus forecasts, coming in at around $1.01 billion.
The adjustments, according to statements released Feb 27, involve “exceptional items” (EI) totalling a positive $1 million. This comprised a net gain of $3 million on disposal of assets and a $8 million gain on a “bargain purchase” on the acquisition of two special purpose vehicles of Leap Green Energy in India. These were partially offset by impairments of $6 million for project expenses incurred in Singapore and Vietnam, and a $4 million change in fair value of contingent consideration for a past acquisition in India upon collection of certain receivables.
In addition, the sole net loss from discontinued operation in FY2024 refers to Chongqing Songzao Sembcorp Electric Power. Sembcorp disposed of its 49% stake in the coal-fired power plant joint venture (JV) with Chongqing Energy Investment Group in December 2024, selling it to an undisclosed buyer. Sembcorp had formed the JV in 2015 and its stake was fully impaired in 2021.
Net profit before these adjustments were largely flat y-o-y at $1.02 billion despite a planned major maintenance of its 1,219-megawatt (MW) cogeneration plant in Singapore in 1HFY2024 and a 34% decline in Singapore wholesale electricity prices during the year.
In financial statements, Sembcorp groups its operations into five segments: gas and related services, renewables, integrated urban solutions (IUS), decarbonisation solutions and other businesses and corporate.
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Wong Kim Yin, group CEO of Sembcorp, says the former is set to drive growth in the medium term, as strong energy demand and concerns over energy security are leading to a shift.
FY2024 net profit before EI for the gas and related services segment fell 10% y-o-y to $727 million, but Sembcorp says this could have been worse with falling wholesale electricity prices in Singapore last year. However, only 1% of its Singapore gas-fired power plants’ capacity was exposed to the spot market; 99% of the Singapore gas-fired portfolio was underpinned by offtake contracts as at end-2024, with 80% of capacity locked in for five years and beyond.
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This segment is an “anchor” of the group’s earnings, says Sembcorp. Management is now guiding for at least 5% earnings CAGR from its gas business until 2028 with a “best-in-class” return on equity, from an earlier guidance of a 2% CAGR decline over the same period.
Underpinning this confidence is potential earnings accretion from Sembcorp’s recent acquisition. In November 2024, Sembcorp completed the acquisition of a 30% interest in Senoko Energy. Its 600MW hydrogen-ready power plant in Singapore will also contribute to earnings upon completion in 2026.
Sembcorp will look to consolidate its position within Senoko Energy and leverage Senoko Power Station’s potential as the only power generation plant in northern Singapore, says Koh Chiap Khiong, Sembcorp’s new president and CEO of the gas and related services segment.
Renewables in focus after reorganisation
Sembcorp’s group CEO Wong unveiled new appointments — Koh included — at a 2½-hour results briefing on Feb 27; the biggest change was to divide its renewables segment into markets east and west of Singapore.
Alex Tan, formerly China CEO, is now president and CEO of “Renewables, East”, where he oversees business in China and Southeast Asia. This includes its wind and solar assets in Vietnam, as well as solar assets and energy storage systems in Indonesia.
India is considered west of Singapore, and renewable assets there are under the purview of Vipul Tuli, president and CEO of “Renewables, West”. Tuli also leads the renewables business in the Middle East — Sembcorp holds an 80% stake in an upcoming 500MW solar plant in Oman.
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Tuli is concurrently CEO of Sembcorp’s global hydrogen business and executive director of the group’s UK operations.
The renewables segment is still far from replacing gas as Sembcorp’s most profitable business, with net profit before EI down 8.5% y-o-y to $183 million in FY2024.
Sembcorp, however, sees massive opportunity in renewables, claiming there is an addressable market of more than 1,650 gigawatts (GW) between now and 2028 in China, India, Saudi Arabia, Oman, Singapore, Vietnam, Indonesia and the Philippines.
For context, Sembcorp has secured 4.1GW of renewables capacity since end-2023, bringing the group’s installed capacity to 13.1GW and a greater 17GW when including projects secured and under construction, as well as acquisitions pending completion.
At the briefing, Tan and Tuli indicated plans to grow the renewable business up to a scale of 35GW, divided between 15GW for China and Southeast Asia (“East”) and 20GW for India and the Middle East (“West”).
A Sembcorp spokesperson later clarified that this is not a firm target. Still, the 35GW figure is higher than Sembcorp’s target of 25GW by 2028, unveiled in November 2023.
IUS with highest growth rate
Finally, Sembcorp’s IUS segment posted 40% higher y-o-y net profit before EI of $169 million, following a turnaround in performance from the Urban business.
Higher land sales were achieved in Vietnam and Indonesia, says Sembcorp. The Urban business has built up a gross land bank of 14,400ha for low-carbon industrial parks and over 508,000 sqm of industrial leasable space from ready-built warehouses and factories.
Sembcorp also secured three new investment licenses in Vietnam, expanding its land bank and positioning the IUS segment for future growth there.
In addition, management says the sale of the wholly-owned waste management unit Sembcorp Environment — which is “not a major line of business” — will be completed in 1H2025 and lead to a gain of “no less than $100 million”. Sembcorp announced in November 2024 a total consideration of some $405 million — 43% above book value — for the proposed transaction with SBT Investment 2, a wholly-owned subsidiary of Indonesia-listed integrated energy company TBS Energi Utama.
Sembcorp’s group CFO Eugene Cheng will double-hat to lead the IUS segment as president and CEO. His target is for mid-teens earnings CAGR and to generate more than 10% return on equity.
Dividend surprise
Analysts have cheered Sembcorp’s higher dividend of 23 cents per ordinary share for the full year, up from 13 cents per ordinary share in FY2023. The proposed dividend represents a higher payout ratio of 40%, up from 23% in FY2023 and an average of 29% over FY2021 to FY2023.
“Management emphasised that this higher payout is sustainable in the foreseeable future and underscores its belief in the strong cash generation ability of all its business segments,” says UOB Kay Hian Research analyst Adrian Loh in a Feb 28 note, where he raised his target price to $8 from $7.47 previously while maintaining his “buy” call.
DBS Group Research’s Ho Pei Hwa calls the dividend a “surprise”, staying “buy” on Sembcorp with a higher target price of $8 from $7.38 previously. “We believe 40% of the rerating will come from high-single-digit earnings growth and 60% from an uplift in the P/E valuation multiple from 9-10 times to 13 times on the back of accretive acquisitions in new renewable markets, steady earnings delivery and potential value-unlocking capital recycling.”
OCBC Investment Research’s analysts think Sembcorp’s latest fair value is $7.20, up from $6.70. Similarly, Maybank Securities’ Krishna Guha thinks Sembcorp could reach $7.10, a higher target than the $6.20 he had set out previously.
Shareholders, too, have reacted accordingly, sending Sembcorp’s stock up by around 5% since the results were released.
Sembcorp’s shares have climbed nearly 25% over the past year and surged more than 250% over the past five years.
Crossing $1 billion in net profit for two consecutive years has given Sembcorp the confidence to increase its dividend, says Wong. “In the past, we had been quite careful in signalling [any] increase in dividends even when business was good. We started with giving out special dividends because we wanted to signal [that] maybe this is a one-time thing. But now, we are saying that [with] the 23-cent ordinary dividend … we are confident that we can sustain this moving forward.”
Wong adds: “We have entered a new phase [that] we call a ‘new normal’ for Sembcorp… We’re reorganising to capture the global transitions that I mentioned, and you saw the quality of the management team. I’m very proud to be part of the team; we’ll be driving further growth, faster growth [and] deeper growth, so that we deliver value to our shareholders just like we did in the past few years.”
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