SINGAPORE (Feb 5): OCBC Investment Research is keeping its “buy” call on Sembcorp Industries (SCI) and raising its fair value estimate to $3.95, from $3.59 previously.

This comes after the share price of its offshore and marine arm, Sembcorp Marine (SembMarine), soared 50% year-to-date on the back of growing optimism in the oil and gas industry.  

“At current levels, [SembMarine’s] market cap is about $5.8 billion compared to SCI’s $6.4 billion,” says lead analyst Low Pei Han in a Monday report. “Excluding SCI’s 61% stake in [SembMarine], this would leave $2.9 billion in terms of ‘market accorded’ value to SCI’s utilities, urban development and other assets.”

According to Low, this represents 0.6-0.7 times book value, which “seems low” in the analyst’s view.

Low opines that SCI’s share price could be weighed down by uncertainty over the results of its strategic review.

The group in May 2017 announced will be undertaking a “complete review” of its businesses and strategic direction in the face of “a challenging macro environment with rapidly changing market dynamics.”

In addition, Low says there could also be concerns over the price paid for SembMarine should there be a privitisation.

However, the analyst reiterates that “2018 could see a different SCI”.

“As a leading developer, owner and operator of energy and water assets with strong operational, management and technical capabilities, Sembcorp Industries has grown its operations to 14 countries and looks set to cement its presence in Asia,” Low says. “There are few companies that can match the group’s established track record in developing greenfield assets and it is unlike the typical utilities company which some view as yield plays.”

As at 11.33am, shares of Sembcorp Industries are trading 5 cents lower at $3.52, implying an estimated price-to-earnings ratio of 23.3 times and a dividend yield of 1.7% for FY17.