SINGAPORE (Dec 4): OCBC is maintaining its “buy” call for Sembcorp Industries (SCI) with $3.88 fair value as it expects 2016 to be a better year.

In a Dec 4 report, lead analyst Low Pei Han said 2015 has been a relatively muted year in terms of earnings for Sembcorp as the Singapore power business was affected by an overcapacity issue which resulted in lower power spreads, and the marine segment also dragged overall profits down due to the weak operating environment.

In addition, the Indian TPCIL plant saw some initial operating losses, which is not surprising given that the plant is within its first year of operations.

However, the Indian plant is expected to overcome its teething problems and should be close to breakeven this year. Meanwhile, other overseas projects should also provide earnings boost once they come online.

While Low says stiff competition may persist in Singapore’s domestic power market, in the longer term, SCI has been expanding its operations steadily over the years in both the utilities and urban development segments.

“We are positive on the long-term prospects of the group, given its good track record and sensible strategy of pursuing emerging market growth,” says Low.

Meanwhile, SCI is expected to see a significant one-off gain this year of about $350 million from the disposal of its 40% stake in Sembsita Pacific. As such, concerns over a possible
reduction of its dividend should be allayed from this move.

“However, with our recent decrease in fair value estimate for SembMarine, our SOTP-based fair value estimate for SCI also drops from $4.03 to $3.88,” says Low.

Sembcorp is up 1% at $3.07.