CGS International
August 8, 2025

Sembcorp Industries: M&A Momentum, Capital Recycling, and Renewables Drive Growth Prospects

Investment Thesis: Sembcorp Industries Positioned for Value Creation

Sembcorp Industries (SCI), a leading Singapore-based conglomerate, is making waves in the energy sector through strategic mergers and acquisitions (M&A), robust capital recycling initiatives, and a growing focus on renewable energy. This detailed analysis from CGS International, dated August 8, 2025, explores Sembcorp’s financial performance, recent developments, competitive positioning, and ESG credentials, providing investors and analysts with a comprehensive overview of SCI’s outlook.

Key Report Highlights

• M&A and capital recycling are expected to act as significant catalysts for SCI’s re-rating in the near term.
• 1H25 profits from Gas & Related Services (GRS) were dampened by the absence of one-off gas gains, higher-priced renewable energy imports, and lower contract renewal rates.
• The target price is revised downward to S\$8.02, maintaining a 13x CY26 P/E valuation, reflecting both cyclical headwinds and the strength in renewables.
• Consensus call: ADD. Sembcorp remains well-positioned with S\$1bn of defensive earnings and further upside potential from M&A and asset recycling.

Financial Performance Analysis

• Revenue is projected to decline in 2025 before rebounding modestly in subsequent years.
• Net profit remains resilient, supported by defensive earnings strength in core segments and upside from new deals.
• Dividend payout continues to grow, with yields expected to rise from 1.93% in 2023 to 3.83% in 2027.
• Return on Equity is robust, though moderating as the business transitions toward renewables and integrates new acquisitions.

1H25 Performance: Earnings Impacted by GRS Softness and Forex Losses

• Reported net profit for 1H25: S\$536m (-1% YoY, +12% HoH), below both CGS and Bloomberg consensus estimates.
• Core profit (ex-forex and divestments): S\$491m.
• Significant items: S\$95m forex loss on India Deferred Payment Note (DPN), S\$142m gain from SembEnviro divestment.
• GRS 1H25 net profit: S\$330m (-3% YoY, -15% HoH), impacted by:
  • Absence of S\$25m-30m one-off gas gains present in 1H24.
  • Approx. S\$5m hit from high-priced renewable energy imports from Malaysia.
  • Approx. S\$30m impact from 100MW (10%) of Singapore portfolio renewed at lower spark spreads (-15%).
• Dividend: Interim DPS of S\$0.09 (up from S\$0.06 in 1H24).

GRS Outlook: Second Half Recovery Expected

• Senoko Energy contribution: S\$50m in 1H25; expected to rise to S\$71m in 2H25, reflecting full-period effect and increased stake (from 30% to 50%).
• GRS full-year 2025F net profit: Projected at S\$700m (-3% YoY).
• Contract renewal risk: 13% of gas-fired portfolio due for renewal in next 0-5 years; most high-priced contracts from 2022-23 have already been renewed, with only 3% left to renew in 2H26F—management expects muted impact going forward.

Renewables: Capital Recycling in India and China Growth Prospects

• India: 1H25 installed capacity at 3.3GW; another 3.3GW under construction. Management is exploring capital recycling of mature assets, potentially by 2H25/1H26.
• China: Renewables supply expected to outpace demand growth, leading to high curtailment risks in the northwest and Guangxi regions.
• 1H25 renewable profit: Slightly above estimate, buoyed by additional capacity and strong wind resources in India.

M&A Pipeline and Balance Sheet Position

• Net debt: S\$7.38bn (down from S\$7.8bn at FY24), reflecting robust cash flow discipline despite continued investment in renewables and acquisitions.
• M&A prospects: Active pursuit of brownfield and greenfield opportunities in the Middle East, targeting deals with at least S\$100m earnings accretion.
• Capital recycling: Management is considering divestment of mature renewable assets in India to free up capital for new growth.

Other Operational Highlights

• Singapore cogen plant: 5-week maintenance planned for 2H25, but limited earnings impact expected due to locked-in contracts for differences.
• UK operations: Potential demand reduction following the closure of SABIC’s ethylene cracker facility in Wilton.
• Integrated Urban Solutions: Ongoing strong demand for industrial land in Northern and Southern Vietnam, despite US trade tariffs.

Peer Comparison: Regional Utilities and Renewable Energy Companies

• SCI’s valuation: Sembcorp’s CY25F P/E of 12.4x and EV/EBITDA of 10.4x are competitive, with a healthy 17.1% ROE in 2026F and a 3.6% dividend yield, placing it attractively among regional peers.
• Peer landscape: The table above highlights SCI’s regional peers across India, Malaysia, Thailand, China, and the Philippines. SCI’s returns, growth, and yield put it near the top tier among listed utilities and renewable companies.

ESG Performance: Decarbonization and Sustainability Leadership

• Climate action: SCI targets 25GW gross renewable installed capacity by 2028 (from 13.1GW in 2024), with an ambitious S\$14bn capex plan for 2024-28F (75% dedicated to renewables).
• Emissions progress: Achieved GHG emissions intensity of 0.27 tCO2e/MWh as of Nov 2024, surpassing 2025 target (0.40 tCO2e/MWh). Targeting 0.15 tCO2e/MWh by 2028 and net-zero by 2050.
• ESG ratings: MSCI ESG Rating: AA (2024); CDP Climate Score: B since 2021 (up from C- in 2017); LSEG ESG Combined Score: B- (2023).
• Community and workforce: Consistent cash donations to community initiatives and digital-forward workforce transformation.
• Valuation and ESG: Successful decarbonization could drive a valuation premium, positioning SCI as Singapore’s leading pure renewable energy proxy and a regional powerhouse.

Balance Sheet and Cash Flow Overview

• Net gearing: Remains elevated but manageable, reflecting the capital intensity of renewable expansion and M&A.
• Cash generation: Operating EBITDA and free cash flow remain healthy, supporting ongoing investments and dividend payouts.

Shareholder and Market Data

• Major shareholder: Temasek Holdings, holding 49.5% of outstanding shares.
• Market cap: S\$11,956m (US\$9,314m).
• Shares outstanding: 1,783 million, with a 50% free float.
• Price performance: 12-month absolute return of 41.5% and interim dividend growth highlight continued market confidence.

Stock Rating and Target Price

• Current Price: S\$6.72
• Target Price: S\$8.02 (revised from S\$8.54), offering 19.3% upside
• Recommendation: ADD, in line with market consensus (14 Buys, 0 Holds, 0 Sells)

Conclusion: Sembcorp Industries – A Defensive Play with Structural Upside

SCI’s diversified portfolio, proven ability to execute on M&A and capital recycling, and ambitious push into renewables position it as a compelling investment within the Asia-Pacific utilities and energy space. While near-term earnings face cyclical headwinds in gas and related services, the structural growth in renewables, robust pipeline, and defensive earnings profile underscore SCI’s long-term value. Investors seeking exposure to the clean energy transition and resilient, dividend-growing assets in Asia should continue to keep Sembcorp Industries on their radar.