UOB Kay Hian Private Limited
August 11, 2025

Sembcorp Industries: Defensive Earnings, Dividend Growth, and Renewables Expansion Signal Buy Opportunity

Company Overview: Sembcorp Industries at a Glance

Sembcorp Industries Ltd (SCI) is a leading Singapore-based industrial conglomerate with diversified businesses spanning wind, solar, conventional energy, water and waste treatment, utilities, and industrial parks. Having divested its stake in Semb Marine in 3Q20, SCI continues to focus on robust growth in renewables and defensive earnings streams.

Resilient 1H25 Results: Defensive Performance and Higher Dividends

SCI delivered a robust set of 1H25 results, with net profit of S\$536 million, closely aligned with forecasts. Key strengths from the period include:

• Higher dividend payout: S\$0.09 per share for 1H25, representing a 50% increase from 1H24’s S\$0.06.
• Renewables growth: Expansion in renewables underpinned by policy support and rising demand.
• Senoko Energy acquisition: Expected earnings accretion from 2H25.
• Strong balance sheet: Net debt of S\$7.38 billion, with 81% on fixed rates and majority of maturities beyond 5 years.
• Free cash flow: S\$1.3 billion in 1H25, up 42% year-on-year.

Despite a 14% share price decline on August 8, erasing nearly S\$2 billion in market cap, analysts view this as an overreaction, presenting an attractive entry point for patient, yield-focused investors.

Key Financial Highlights and Performance Metrics

Segment Analysis: Earnings Drivers and Outlook

• Renewables: SCI’s renewables portfolio continues to expand, supported by government policy and growing power demand. While curtailment risks persist in China due to transmission bottlenecks and excess generation, SCI has increased its returns requirements for investments in regions lacking strong transmission grids. Notably, China accounts for only 10% of total renewables earnings, limiting the bottom-line impact to roughly 1% negative. Profitability in this segment benefitted from improved wind resources in India and contributions from new projects.
• Senoko Energy: The acquisition of Senoko Energy in late 2024 and mid-2025 strengthens SCI’s 3GW Singapore power generation portfolio, enabling strategic pursuit of long-term power purchase agreements. With a robust fleet of baseload generation and battery capacity, SCI is shielded from market price volatility due to planned or unplanned outages. The company has also signed new contracts, including:
  • 120MW with data centre and commercial/industrial customers (5-10 year tenures)
  • Over S\$650 million in new gas, power, and utilities contracts with Aster Chemicals & Energy
• Integrated Urban Solutions (IUS): The IUS segment posted a stable net profit of S\$74 million, with highlights including steady to higher land sales in Vietnam and Indonesia. Two new business parks awarded in Vietnam during 1H25 are set to drive medium- to long-term growth.
• Currency Impact: After “Liberation Day,” several currencies depreciated against the Singapore dollar by 2-6%, resulting in a non-cash translation loss of S\$23 million. Excluding FX losses, net profit would have increased by about 5% year-on-year. Additionally, the stronger Singapore dollar against the Indian rupee led to a S\$95 million forex loss on the Deferred Payment Note.

Debt Profile and Cash Flow Strength

• SCI maintains a well-structured debt profile with 81% of debt on fixed rates and the majority maturing beyond five years.
• Net debt/EBITDA ratio stands at 4.6x, supported by strong free cash flow generation.
• Operating cash flow for 2025F is projected at S\$1.1 billion, with ending cash and equivalents rising to S\$1.38 billion.

Updates to Earnings Estimates and Outlook

The earnings forecast for 2025-2027 has been revised downwards by 2-5% to reflect:

• Margin erosion from renewable energy imports from Malaysia
• Potential tariff reduction for 100MW of renewables in Vietnam
• Risk of further curtailment in northwestern China and Guangxi

Valuation, Recommendation, and Price Catalysts

• Valuation: SCI is maintained at a BUY rating, with a slightly lower PE-based target price of S\$7.90 (previously S\$8.00). The target PE multiple is set at 12.8x, 1.5 standard deviations above the 2018-25 average PE (excluding 2020 impairments).
• Relative Value: SCI trades at a 10% discount to Asia Pacific peers (PE basis) and a 46% discount on EV/EBITDA, while delivering a projected ROE of 19.2%—69% higher than peers.
• Share Price Catalysts:
  • Successful execution of renewables targets via organic and inorganic growth
  • On-time, on-budget delivery of the 600MW hydrogen-ready co-generation plant in Singapore
  • Capital recycling within the energy portfolio (India)
  • Earnings-accretive M&A in India and the Middle East

Segment Contribution Breakdown (1H25 vs 1H24)

Renewables Portfolio Growth and Curtailment Rates

• Renewables installed capacity has grown from 9.4GW in 2020 to 13.8GW in 2024, with a 2028 target of 25GW.
• China portfolio curtailment rates for solar and wind have fluctuated, with solar curtailment reaching 17.4% in 2H24, then falling to 5.3% in 1H25. Wind curtailment was 12.9% in 1H25.

Comprehensive Financial Table: Profit & Loss, Balance Sheet, and Cash Flow

Conclusion: SCI’s Strategic Positioning Offers Attractive Upside

Sembcorp Industries stands out for its defensive earnings, dividend growth, and strategic expansion in renewables. With strong cash flows, a robust balance sheet, and undervaluation relative to peers, SCI is well-positioned for continued growth and attractive returns. Investors seeking stable, yield-driven opportunities in the utilities and renewables space should consider SCI as a compelling buy.