Sembcorp Industries: Powering Ahead with Strategic Acquisitions and Renewable Energy Expansion
CGS International | April 2, 2025

Sembcorp Industries: Powering Ahead with Strategic Acquisitions and Renewable Energy Expansion

Upping Stake in Senoko Power: A Value-Accretive Move

Sembcorp Industries (SCI) has announced that it is increasing its stake in Senoko Power (Senoko) from the current 30% to a maximum of 70%. The purchase consideration of S$137 million implies a valuation of around 1.2x FY24 estimated profit for Senoko, similar to the 1.2x P/E ratio SCI paid for its initial 30% stake acquisition in November 2024.
This strategic move is expected to boost SCI’s attributable operational power capacity in Singapore to 2.5-3 GW, up from the current 2 GW. The Energy Market Authority of Singapore has approved the transaction, which is expected to be completed by the second quarter of 2025.

Earnings Upgrade and Higher Target Price

We have increased our FY25-27 earnings per share (EPS) estimates for SCI by 2% to incorporate the higher Senoko stake, assuming SCI takes on a 50% ownership. Our target price for SCI is raised to S$8.14, factoring in the EPS upgrade and a 10% premium over regional peers’ 11x forward P/E multiple, given SCI’s relatively higher 3-year EPS CAGR of 7% (peers: 1%) and ROE of 19% (peers: 12%).

Catalysts and Risks

Key catalysts for SCI include stronger-than-expected EPS growth from capacity expansion, new renewable energy (RE) contracts, and recycling of mature RE and non-core assets. Risks include unfavorable regulatory changes and prolonged plant shutdowns.

ESG Commitments and Renewable Energy Expansion

SCI has made significant progress in its climate change initiatives, achieving its 2025 emissions intensity target of 0.40 tCO2e/MWh (Scope 1 and 2) as of November 2023. The company aims to further reduce its emissions intensity to 0.15 tCO2e/MWh by 2028, with a target of net-zero emissions by 2050.
SCI has also set a target of reaching 25 GW of gross RE installed capacity by 2028, up from the current 8.7 GW. To support this growth, the company has allocated S$14 billion in capital expenditure for 2024-2028, with 75% earmarked for RE capacity expansion.

Floating Solar Farm Expansion

In addition to the Senoko acquisition, SCI recently signed a 25-year Renewable Energy Purchase Agreement (REPA) with Malkoha Pte Ltd, a subsidiary of Meta Platforms, Inc. Under this agreement, SCI will build, own, and operate a 150 MWp floating solar photovoltaic system on Kranji Reservoir, further expanding its renewable energy footprint in Singapore.

Valuation and Recommendation

SCI is currently trading at an undemanding valuation of 9x FY26 P/E, below the market average of 13x. We maintain our “Add” rating on the stock, with a higher target price of S$8.14, representing a 26.7% upside potential. SCI remains one of our top country picks, with its strong growth prospects and commitment to sustainability.