OVERVIEW:
A conglomerate with two dominant businesses - offshore oil & gas heavy engineering via Sembcorp Marine and a global utilities business. Temasek Holdings owns major shares at 49.5%.
HIGHLIGHTS:
[1] 9M2015 result saw the counter falling in both revenue and profit about 13% and 6% year on year. Marine segment registered net profit $151m which was down 36% drop in net profit, thus contributed the most for overall tumbling. Utilities segment was up by 3% to $306m.
[2] The counter is facing stiff competition in domestic power market thus it has been expanding into emerging market over years. Overseas contribution for utilities segment has been growing at 12%. First thermal power project (Total 2000MW power supply) in India achieved full operation since last September. It was just awarded a 426MW gas-fired power project in Bangladesh.
[3] Last week, Sembcorp Marine issued profit warning about significant decline in net profit by FY2015. It was attributed to "customer deferring or seeking to defer their rig orders". It involved in legal action with Marco Polo Drilling about a termination of rig contract.
INVESTMENT THEMES:
[1] The management guided that net gain ~$350m to be recognised in 4Q2015 due to divestment of its stake in Australian waste management joint venture. Investor can look forward annual dividend at $0.16 on FY2016. It translates to 5% based on current trading price. New power plant in overseas is widely expected to be bright spot next year.
[2] Due to headwind in oil&gas sector, the counter has been trading with heavy discount to its net asset value as refer to the chart below. It represent attractive price range with P/B ~0.85 and P/E ~7.8.
[3] Based on Sum of Part valuation (SOP), both OCBC and UOB rated the counter > $3.8.
PRICE TREND:
Price is hitting support at 3 and showing rebound. Latest OPEC meeting announced its determination to maintain current oil supply glut. Shall trading price of the counter break current support, further discount is presented for value investor.
*** Note: Same counter has been mentioned in Mar[3] ***
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