The research team at OCBC Investment Research has downgraded Sembcorp Industries to “hold” from its previous “buy” recommendation in June.

Following the official demerger between Sembcorp Industries and Sembcorp Marine in August, shares in Sembcorp surged about 50% till the close of September 9.

The marine segment, which has been a drag on Sembcorp, is no longer there, which allows Sembcorp to focus on its suite of energy, utilities, and urban solutions.

That said, the above factors have largely been priced in after the “significant share price appreciation”.

“While we remain constructive on the name, the market may need more concrete evidence of earnings growth for the next leg up,” says the team in a report dated September 10.

To that end, the team is also on the lookout of the possibility of Sembcorp dropping out of the benchmark Straits Times Index (STI) following the drop in its market capitalisation after the demerger.

“This could weigh on the share price”, the team adds.

Shares in Sembcorp adjusted downwards to account for the distribution. On that, the team has adjusted its estimates, and its sum of the parts (SOTP)-based fair value is now $1.27, implying a 0.75x price-to-book value.

“The pro-forma net asset value (NAV) per share of Sembcorp Industries as at end June (assuming the transaction took place then) is $1.67,” it says.

Potential catalysts for the stock include an increase in oil prices, accretive acquisitions in the region at reasonable valuation multiples, and unlocking of value in its subsidiaries and associates.

However, a decline in macroeconomic factors, plunge in oil prices, a drag in its India business, as well as acquisition and integration risks could cause risks in the company’s valuation.

As at 12.40pm, shares in Sembcorp are trading 2 cents higher, or 1.7% up, at $1.20.