Sembcorp Industries

Sembcorp Industries | Buy

Nov 5 close: S$2.69

Target price: S$3.70

DBS Group Research, Nov 5

Sembcorp Industries (SCI) offers a unique value proposition as a proxy to ride the cyclical offshore and marine (O&M) upturn, and is supported by a defensive utilities business. While Sembcorp Gayatri Power Limited's losses widened in Q3, it should narrow as the Bangladesh Power Purchase Agreement is set to commence in H1 2019. We believe continuous improvement in India will re-rate SCI's Utilities business, which is undervalued at 0.66 times price to book value ratio (P/BV) and 7.8 times price to earnings ratio (PE) against 6 per cent return on equity.

The power market in India is recovering with narrower oversupply in the market and higher tariff. This should swing the India operations to profit in 2018.

Maintain "buy"; target price adjusted to S$3.70, to reflect lower Sembcorp Marine target price (from S$2.50 to S$2.40) and earnings estimate for India operations.

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