ENERGY - FOSSIL FUELS + CHEMICALS + HOLDING COMPANIES + UTILITIES
Like The Hour Glass in the consumer cyclical sector, Sembcorp Industries is the only winning company in the energy-fossil fuels + chemicals + holding companies + utilities sector at this year’s Billion Dollar Club (BDC). Based on our methodology, there are no winners for the weighted return on equity (ROE) and growth in profit after tax (PAT) categories. As such, Sembcorp Industries is deemed the winner for returns to shareholders and is also the overall sector winner.
Sembcorp, a component of the Straits Times Index, is described as a leading energy and urban solutions provider actively moving into renewable energy amid a wider drive for sustainability. The company used to be like a conglomerate with stakes and interests in multiple industries but is maintaining a clear focus on energy under the current management team. Sembcorp says it is actively leveraging its sector expertise and global track record to deliver innovative solutions supporting the energy transition and sustainable development. The company’s energy business was based on fossil fuels for years.
With sustainability now key, it has actively added renewable-based energy assets into its portfolio. It now has a “balanced” energy portfolio of 19.5GW, with 12GW of gross renewable energy capacity comprising solar, wind and energy storage globally. In addition, the company is in what it calls integrated urban solutions. Sembcorp says it has built a “proven track record” of transforming raw land into sustainable urban developments, with a project portfolio spanning over 14,000ha across Asia.
In Singapore, a company with a market cap in the billions is normally not seen as a multi-bagger, given how large caps are often past their peak growth phase. However, Sembcorp did just that. This is more remarkable given that this is a utility company — better known for steady cash flows and healthy dividend yields. From a share price of 78 cents as at March 2020, Sembcorp’s share price increased to $1.84 a year later and $2.67 as at March 31, 2022. As at March 31, its share price hit $4.38.
In the three years taken into consideration for the BDC, Sembcorp’s share price increased at a CAGR of 77.7%, earning Sembcorp the second-best performer after iFast Corp’s 83.1%. In third place is Golden Energy and Resources , which reported a CAGR of 77.5%. Sembcorp reported earnings of $247 million in FY2019 ended December 2019, but sank into a loss of $997 million the following year, largely because of an impairment it took related to its former subsidiary Sembcorp Marine .
In FY2021, the company bounced back with earnings of $279 million and surged to $848 million in FY2022 as investors sat up and took notice that the company was raking it in with rising energy prices because of the global recovery from the pandemic plus the outbreak of fighting between Russia and Ukraine, which constricted energy supply. However, as the movement of its share price has shown, investors like Sembcorp’s active investment into the renewable energy space, too, as it executes its strategy to transform from “brown to green”.