Sembcorp declares ‘shopping season' with strong Singdollar, even as earnings take a hit

Business Times

2 days ago

[SINGAPORE] Sembcorp Industries wants to take advantage of the stronger Singapore dollar to go 'shopping' for deals, even as the company's shares tumbled on Friday amid muted earnings and the threat of US tariffs.
For the half-year ended Jun 30, Sembcorp posted a 1 per cent fall in net profit to S$536 million, amid lower turnover from its gas business.
Sembcorp's share price fell by as much as 15.6 per cent to hit a low of S$6.58 on Friday. It eventually ended the day at S$6.72, down 13.9 per cent.
At an earnings briefing on Friday, Sembcorp's chief financial officer Eugene Cheng flagged that the stronger Singapore dollar resulted in a S$23 million forex translation impact on earnings, which cannot be hedged against.
Chief executive Wong Kim Yin further noted that the US tariffs – which kicked in on Friday – have created uncertainty and 'somewhat tempered customers' expansion plans'.
'For example, we are observing a more cautious stance from several multinational manufacturers in our industrial parks,' he said.
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That said, Cheng highlighted that Sembcorp has S$3.5 billion in 'on-demand liquidity that we can readily draw on to deploy for growth'. The sum comprises S$879 million in cash and S$2.6 billion in unutilised committed facilities as at end-June.
Said Wong: 'With a strong balance sheet, strong cash flow and strong Singdollar, this is shopping season. I can't tell you a lot about what is being cooked, but there are opportunities out there, and we are very well-positioned to capture some of those.'
The company also expects to maintain a 'sustainable' dividend payout despite the macro challenges. It declared an interim dividend of S$0.09 per share, up from S$0.06 per share in the year-ago period.
Gas down, renewables up
Sembcorp's flat H1 earnings came on the back of an 8 per cent fall in revenue to S$2.9 billion.
The company saw lower generation spreads in Singapore, as well as the absence of contributions from the Phu My 3 power plant in Vietnam, which it transferred to the government.
Turnover in the gas segment – Sembcorp's largest revenue driver – fell by 11.1 per cent to S$2.1 billion. Earnings stood at S$330 million, down from S$339 million a year earlier.
The weakness in the gas business was partly offset by a 22.1 per cent rise in earnings from renewables, to S$138 million. This was driven by higher contributions from India, which had better wind resources.
Sembcorp's gross installed renewables capacity rose to 13.8 gigawatts (GW) in H1, from 10 GW the year before.
That said, the group's China renewable business was hit by lower tariffs and higher curtailment, where the amount of electricity generated had to be restricted. This is because China's rapid renewables expansion has outpaced demand growth, said Wong.
Asked about the risk of asset impairment in China, he added that most of Sembcorp's assets are in provinces with better demand-supply dynamics, although 'one or two' are in the north-west region.
Sembcorp is watching the situation 'very closely', Wong said, adding: 'To the extent it is prudent and necessary, we will be making the relevant adjustments and keep you informed.'
Separately, the company's earnings in the integrated urban-solutions division rose 9.6 per cent to S$80 million. Growth was supported by higher land sales in Indonesia and improved earnings from the water business in China.
Outlook
Looking ahead, Sembcorp expects its H2 earnings from the gas business to remain 'resilient', despite lower spreads for contracts renewed since the second half of 2024.
There could also be lower customer demand in the UK, with the closure of an ethylene cracker facility in Wilton, said Wong.
Nevertheless he described Sembcorp's move to raise its stake in Senoko Energy as a positive for the gas business, while also complementing Sembcorp's renewable import projects.
This is because Senoko's portfolio of power plants can mitigate the intermittency of imported green power, such as solar energy.
'However reliable, there will still be interruptions from time to time. We can cover the interruption with our own fleets of power plants; we don't need to go out there and beg for someone else to provide insurance or emergency cover for us,' said Wong.
That said, the outlook for the renewables business is muted. Earnings in H2 are expected to be lower due to seasonality, as well as higher curtailment and lower tariffs in China, compared with last year.
That said, Wong is optimistic that the broader transition towards renewable energy is 'still alive' – with countries requiring both baseload power and renewables.
'Renewables will not disappear,' he said, adding that it is a means of achieving energy independence without having to import power. The costs of renewables, including energy storage costs, are also declining rapidly.
'Even if you don't believe in green, it's still good to do. It will have its place in the energy mix,' he said.
Sembcorp's interim dividend will be paid on Aug 26.