Photo: Sembcorp Industries

PhillipCapital analyst Terence Chua has downgraded his recommendation on Sembcorp Industries to “neutral” from “accumulate” as he sees that most of the counter’s positives have been “priced in”.

The group’s ambition of transforming its portfolio is not new either, he writes in a May 31 report.

Chua’s recommendation comes after the group has announced its strategic plan to transform its portfolio into a green one on May 27, including aiming for 70% profit contribution from sustainable projects by 2025.

See: Sembcorp Industries aims for 70% profit contribution from sustainable projects by 2025, net zero emissions by 2050 and Analysts raise their target prices for Sembcorp Industries on its strategic shift to renewables

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For its plan, Sembcorp has projected a capital expenditure (capex) of $5.5 billion for the next five years, with 80% to be spent on renewables and 20% on urban development.

It is also aiming to halve its greenhouse gas emissions by 2030 and deliver net zero carbon emissions by 2050.

On this, Chua believes the group will “accomplish this by aggressively growing its renewables capacity, improve its fuel mix, divest its thermal coal business, or possibly a combination of the three”.

The group’s target return on equity (ROE) of 10% for 2025 is “achievable” says Chua, though that will depend on its execution of plans in the next four years.

“We expect the group to continue with its transition to sustainable solutions and sustainable development. Despite its ambitious growth plans, it will not require any equity fund-raising, relying entirely on internal sources,” he writes.

For more stories about where the money flows, click here for our Capital section

“Owing to persistent uncertainties surrounding recovery from the Covid-19 pandemic, intense competition from other global utility companies and expiry of long-term contracts impacting PATMI by around $100 million in the next five years, we keep our earnings estimates unchanged,” he adds.

Despite the recommendation downgrade, Chua has increased Sembcorp’s target price estimate to $2.07 from $1.77 as he pegs it to 1.0 times FY2021 price-to-book (P/B), up from 0.85 times previously.

“We believe the detailed layout of its five-year plan will drive a re-rating of the stock. This reflects its improving outlook and stronger operating metrics expected for FY2021 and FY2022,” he says.

Chua’s current target price estimate represents a 3.2% downside to Sembcorp’s last-closed share price of $2.20.

As at 11.05am, shares in Sembcorp are trading 4 cents higher or 1.8% up at $2.24 or 0.6 times P/B, according to PhillipCapital’s estimates.