Date of Report: 3 October 2024
Broker: UOB Kay Hian

Strategic Acquisition of Senoko Energy

Sembcorp Industries (SCI) is pursuing a strategic acquisition of a 30% stake in Senoko Energy, a key player in Singapore’s energy market. This move is viewed positively as it will enable SCI to secure more long-term power purchase agreements. Currently, approximately 80% of SCI’s capacity in Singapore is under long-term contracts, indicating strong revenue stability.

Earnings Accretion from Acquisition

The acquisition is expected to be earnings accretive starting from 2025, significantly enhancing SCI’s position in the energy sector. The exact financial details of the acquisition are not disclosed, but estimates suggest that the consideration may be significantly lower than media reports of S$3 billion.

Business Development Activities

Sembcorp Industries has been active in various business development initiatives in August and September 2024. Notable efforts include:

• A Heads of Terms agreement with Kyushu Electric Power, Sojitz, and Nippon Yusen Kabushiki Kaisha (NYK) to export green ammonia from India to Japan, leveraging SCI’s existing 4.7 GW renewables portfolio in India.
• Discussions with Bharat Petroleum Corporation Limited (BPCL) for a joint venture agreement focused on renewable energy and green hydrogen projects in India.
• Signing an 11-year gas sales agreement with Conrad Asia Energy for the importation of 111 mmbtu/day of pipeline gas from the Natuna Sea, scheduled to commence in 2026.

Investment Recommendation and Target Price

UOB Kay Hian maintains a “BUY” rating for Sembcorp Industries, with a target price of S$7.47. This target is based on a price-to-earnings (PE) multiple of 12.8x, which reflects the company’s growth potential and the strategic benefits from recent acquisitions and initiatives in the renewable energy sector.

Share Price Catalysts

Key events that could drive Sembcorp’s share price higher include:

• Successful execution of value-accretive acquisitions in the green energy space.
• Increased targets for gross renewables capacity.
• Potential recovery in market conditions that could enhance demand for energy services.