Title: More than enough gas – Sembcorp Industries Conglomerate │ Singapore │ March 14, 2025
Sembcorp Industries: More than enough gas
Termination of gas imports will have minimal impact
Sembcorp Industries (SCI) recently announced the termination of a gas sales agreement (GSA) to import 111 BBTU/d of piped natural gas (PNG) from West Natuna, Indonesia. This agreement was supposed to commence in 2026 and last for 11 years. The analysts estimate this to be equivalent to around 0.6mtpa of gas in SCI’s total long-term gas portfolio of 2.8mtpa, which has a 40%/60% PNG/LNG split.
Ample gas supply for current and future needs
According to the analysts’ calculations, SCI’s existing gas portfolio of 2.8mtpa can power 22.8GWh of electricity based on a 55% load capacity. This is more than sufficient to meet the group’s current capacity of 1,219GW, the upcoming 600MW capacity in 2026, as well as gas available for sale. Sembcorp Gas generated around S\$152m in profits in FY23, which is likely to improve further in FY25F-27F with the commencement of LNG imports from 2025. The analysts believe SCI’s guidance of a +5% CAGR in profit for gas and related services by 2028 remains unaffected by the termination of the GSA.
Media reports on Vietnam could be overblown
There were media reports that Vietnam’s government is reviewing renewable energy projects, focusing on issues like misapplied feed-in-tariff (FIT) incentives, unauthorized commercial operations date (COD) recognition, land-use conflicts, and incomplete documentation. One measure the government could take is the reassessment of electricity prices. The analysts understand that SCI’s 49%-owned BCG GAIA solar plant of 106GW in Vietnam could be at risk, but the impact is likely to be minimal as BCG GAIA accounted for only 1% of SCI’s 13GW renewable energy portfolio.
Reiterate Add rating with a higher target price
The analysts reiterate their Add rating on SCI, citing the company’s strong renewable energy portfolio and expanded market share in Singapore. Key catalysts include stronger-than-expected earnings growth from capacity expansion, accelerated pace of acquisitions and securing of renewable energy contracts to reach its 2028 target, and recycling of mature renewable and non-core assets. Risks include unfavorable regulatory changes impacting the operating environment and prolonged unplanned plant shutdowns. The target price is raised to S\$7.81 as the valuations are rolled forward to FY26F, in line with regional peers.
Conglomerate │ Singapore Sembcorp Industries │ March 14, 2025
Peers Comparison
The report also provides a comprehensive comparison of SCI against its regional peers in the renewable energy and utilities sectors. The analysis covers various financial metrics such as P/E, EV/EBITDA, dividend yield, and returns on equity. SCI is trading at 9.3x FY25F P/E and 7.5x FY26F EV/EBITDA, which is in line with the average of its peers.
ESG Considerations
The report also delves into SCI’s ESG performance, noting that the company has a LSEG ESG combined score of B- in 2023. SCI has made good progress in its climate change efforts, achieving its 2025 emissions intensity target of 0.40 tCO2e/MWh (Scope 1 and 2). By 2028, the company aims to halve its emissions intensity to 0.15 tCO2e/MWh from 2023 levels of 0.30 tCO2e/MWh. The analysts believe successful decarbonization efforts could lead to premium valuations for SCI as it is the only pure renewable energy proxy in Singapore.
Conglomerate │ Singapore Sembcorp Industries │ March 14, 2025
