Sembcorp Industries

Life After Divestment

The company was incorporated in 1998 with the merger of Singapore Technologies Industries Corp. and Sembawang Corp. The principal businesses of the company are:

  • Energy: Utilities & services e.g. energy, steam, industrial water treatment and wastewater management

  • Urban: Integrated urban development e.g. industrial park

  • Marine: Ship and rig building, repair and conversion

Primary markets are:

  • Singapore

  • China, India, rest of Asia

  • MENA, United Kingdom, Norway, rest of Europe

  • Brazil and United States

Business

Revenue grew at a CAGR of 7% between 2005-2014 and started to trend lower due to:

  • Weak energy demand between 2015-2016. Revenue step up from 2017 thereafter. Margin fell from 10Y average 7.1% to 3.2% in FY19. 

  • Sharp drop in demand for rigs and related activities due to oil price collapse and corruption scandal of a major Brazil customer. Once a substantial profit generator, this business was loss-making in FY18 & FY19. FY20 losses is expected to be substantially higher. 

Urban revenue is insignificant as this business is accounted under equity method. Profit in FY19 was $117M from handover of Riverside Grandeur, Nanjing China and 2 properties in Vietnam-Singapore Industrial Park. 

Sembcorp Marine Divestment

In Jun20, a $2.1B rights issue was proposed to recapitalise Sembcorp Marine and emerge from Sembcorp Industries. Process was completed in Sep20 with unsubscribed rights of 1.03B shares mopped up by Startree of Temasek.

SCI share price rallied from May20 low of $0.685 to $1.40 peak in Sep20. 

Financial FY2020

Revenue in 1H20 fell 27% to $3.5B and recorded a loss of $0.13B. Key reason was due to Sembcorp Marine $117M losses. Energy recorded a small loss of $5M and Others/Corp a loss of $47M. Urban was the only segment registering a gain of $38M. 

SCI guidance is that FY20 profitability is likely to close in negative territory.

Opinion

Demerger of Sembcorp Marine was an important strategic action. It had been a laggard to SCI financial performance in the past 5 years.

However, this does not imply that the road ahead is clear for SCI. 

 

In the short to medium term, Energy demand will continue to face demand headwind. In addition, Chilean Water business will have an adverse impact on the company FY20 results due to currency translation loss. Estaleiro Jurong Aracruz, Brazil is still an open issue that require closure. 

Eventual $1.8B IPO of Sembcorp Energy India Ltd (SEIL) however is a bright spot in the near future.

As for Urban businesses, management have already guided that FY20 is likely to be weaker than FY19 due to Covid-19 impacting sales in China and Vietnam.

 

While SCI have resolved her most difficult Marine business; the road ahead is still fraught with challenges and a high gearing of 1.8 in its book. Operating as a smaller entity post demerger, there is an added risk of the company being dropped from STI. 

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