SembCorp Industries

[maxam]

Hi,

I realised SCI has seen some selling pressure recently but I could not figure any reason for the fall. Could anyone who knows why kindly enlighten me. Thks.

[opmi]

EMA taking forever to open the electricity market to mass market retail. Change meters also take so long. Half-hearted. Sg Regulators pro-business than pro-consumers.


Sent from my iPhone using Tapatalk

[Curiousparty]

There is excess capacity in the electricity market.
{Basis: Capacity ~ 12,000 MW vs Peak Demand of ~6000MW} - Source of info: EMA and EMC website.

Profit margin for genco business is very tight at the moment. I am not surprising that some of them might be "bleeding away", including SembCorp.
The gencos have to continue generating electricity (even at a loss) because most of them have locked in contracts for the supply of PNG (piped natural gas).

Did anyone notice that the vested price of electricity (i.e. which determines the regulated tariff) is much higher than the wholesales pool energy price now?
The implication is that non-contestable consumers (like households) might be better off buying directly from the grid/pool instead of relying on MSSL (SP services) to provide the regulated electricity.

75% of the demand is liberalized while the remaining 25% of demand comes from small consumers like households, small businesses, etc.
Out of the total demand of 100%, 40% of the demand is vested at a certain price (i.e. the vesting price). This is like a form of price regulation. So, in a way, only 60% of the demand is really "liberalized".

I just feel that the whole liberalization exercise in the electricity market is so "contrived".

[greengiraffe]

http://www.businesstimes.com.sg/premium/...a-20140916

PUBLISHED SEPTEMBER 16, 2014
Sembcorp to expand energy business in China
It inks conditional JV deal on power project in Chongqing
BYMALMINDERJIT SINGH
msingh@sph.com.sg @MalminderjitBT

SEMBCORP Industries (Sembcorp) on Monday signed a conditional joint venture agreement with Chongqing Songzao Coal and Power LLC in a bid to expand its energy business in China.
The agreement with the subsidiary of Chongqing Energy Investment Group to collaborate on a mine-mouth coal-fired power project in Chongqing municipality includes the acquisition of a 49 per cent stake in an existing 300-megawatt coal-fired power plant, as well as in the joint development of an adjacent 1,320-megawatt coal-fired power plant, which will be one of the most efficient power plants in the province.
The entire project will cost approximately six billion yuan (about S$1.2 billion), with the development of the new 1,320-megawatt plant expected to be completed in 2017. The project will significantly strengthen Sembcorp's energy business in China, increasing the group's power capacity in the country by about 2.5 times from 987 megawatts to 2,607 megawatts.
The two power plants are located at the mouth of the coal mines and are the only mine-mouth coal-fired power plants in Chongqing. This strategic location will bring about significant savings in logistics costs, enabling the joint venture to be a low-cost power producer. The coal mines are owned by Sembcorp's project partner, Chongqing Songzao Coal and Power LLC, further ensuring the reliability of coal supply.

[greengiraffe]

http://www.businesstimes.com.sg/companie...-at-s1966m

Sembcorp's Q3 profit down 22.7% at S$196.6m
Utilities segment earnings fall 34%; year-ago period included gains from Salalah IPO

By
Chan Yi Wenyiwenc@sph.com.sg@ChanYiWenBT
BT_20141107_YCSEMBCORP7_1355972.jpg Sembcorp says that competition in Singapore's power market continues to be intense and is expected to affect the performance of its utilities business. FILE PHOTO
7 Nov5:50 AM
Singapore

SEMBCORP's net profit for the third quarter ended September tumbled 22.7 per cent to S$196.6 million, from S$254.4 million a year ago.

The drag came from the utilities segment, which saw a 34 per cent fall in net profit to S$114.2 million. On a nine-month basis, this

[Greenrookie]

SI lost 3.2% after release of results.

I wonder if market over-reacted.

1) drop in NP from utilities is due to lack of 1 off IPO gain. UK operations stablized.

China is the spanner. Plenty of projects over the next 24 months. Urban development also growing nicely albeit slower.

Marine is not falling off a cliff, and will most probably be more or less status quo over the next 24 months.

Valuation is not demanding too.

Past post from blog: ( pics cannot be pasted)

http://sillyinvestor.blogspot.sg/2014/10...1.html?m=0

Trying to consolidate my thoughts here.

Sembcorp is a cash generating net cash company, with positive FCF 11 out of the 15 years record that I tracked.

I am particularly interested in the utilities segment, as I see it as both a cash cow and a growth sector.




Since its inception in 2001, it has almost an unbroken track record of growing EBIT (I used this for consistency with earlier 2001-2002 data). While I still cannot not ascertain how much of the revenue is recurring, but I know recurring income form a portion of it, otherwise, it is unlikely that Hyflux is burning cash, and Sembcorp with also its water business, is generating cash. Note also that 2013 UK operations is making a loss of 52 mio, but earnings before tax and minority interest still grows.

It also has a good pipeline of projects:


(Source: 2013 AR)

Utility has taken over marine as the top contributor, and the Urban Development segment, while doing well in Vietnam with hugh landbank is too small to make a big contribution.

Valuation wise, it is very decent.

Using DCF with FCF assumption of 500 mio, At current prices, it is trading at 3% growth rate, and 8% discount rate with 20% MOS. Believe the assumption is quite conservative. In term of PE, it is trading at PE 12-13, not demanding too.

It seems rather clear sky over the next few years, with the marine segment also having a strong order book.

Only one bug bear.

Dividend yield, I am OK with around a 4% yield for a good blue chip for long term growth. However, I suspect Marine might be the spoiler in years to come.

I am very apprehensive about the oil and gas sector. I will need to dig more before I decide what to do. I believe many think the O&G is a evergreen sector, it is not, it is cyclical. And I think we are closer to the peak than to the bottom. Why?



(Source: http://www.wtrg.com/prices.htm)

Seem like the rig business is having a party for a decade.

High Prices attract more supply. As seen in all cycles




While the fleet net gain has been falling, it looks like the high oil prices in the 2000s has generate 6-7 years of good net gains, and if Keppel and Sembmarine order book is anything to go by, the newbuild deliveries are not falling off the chart too.

Rate is holding up though,which is good news, meaning there is no serious over supply yet?



Source of pictures: http://www.ihs.com/pdfs/Jackup-Rig-Market-Report.pdf

Please click on the report to read more, although the report is old, but it seem provide some good insights for me.

I am not industry expert, I just told myself it is better to buy survivors in down cycles than winners in up cycles, there is why I bought YZJ when BDI collapse, many shipbuilders collapsing, meaning rate is so low that it is squeezing out players, I know we are nearer to the bottom than anywhere near the top. Applying the same logic...

Ok, this blog post is taking much longer than I thought, and I am not even vested! Time to sleep.

Cheers,
Silly investor

-------

(Newly vested)

[yeh]

i have few lot vested at 4.77, today i just scoop somemore at 4.56

[Ben]

I also bought some today at 4.56. I like the fact that its utilities business has been growing steady over the years and now has became the biggest contributor. Its Urban Development segment, while still small at the moment, is growing very nicely.

[greengiraffe]

SCI 7 & 12 yr bonds indicative 3% and 3.7% anyone?

New Bond Issue...

Seriously I don't understand why would anyone buy these long dated bonds at such low yields...

Better off buying mother shares right?

GG

[Stephen]

SCI 7 & 12 yr bonds indicative 3% and 3.7% anyone?

New Bond Issue...

Seriously I don't understand why would anyone buy these long dated bonds at such low yields...

Better off buying mother shares right?

GG

Possibly because those rich folks have a relationship with a private bank to loan at favourable rates for higher returns due to it good rating and they have the holding power to hold to maturity to withstand the fluctuations in between.

Anyway, i doubt fed funds interest rate will rise much or even rise at all in 2015, judging by the low inflation rate in US, below their stated (about) 2% inflation target, there is no incentive to raise at all and risk derailing the economy.

Add to that oil prices has come down, reducing inflation further....

Low interest rates could last for longer than we think!