SINGAPORE (June 4): OCBC Investment Research is maintaining “buy” on Sembcorp Industries (SCI) with a lower fair value estimate of $3.03 compared to $3.13 previously.

The fair value cut comes on the back of a lower fair values estimate for SCI’s 61%-owned marine business Sembcorp Marine (SMM), as the market continues to monitor SMM’s capital expenditure and working capital needs.

In a Tuesday report, analyst Low Pei Han notes that net gearing as at 1Q19 for SMM and SCI was at 1.47 times and 1.1 times, respectively,

“For SCI, the group is about halfway in its capital recycling programme. Since the start of 2018, SCI has unlocked cash proceeds of about $220 million, which is more than 40% of the $500m million divestments it is targeting to achieve by 2020,” says Low.

Commenting on the recent intensification of US-China trade tensions, Low does not see a significant direct impact on SCI considering the essential nature of its businesses, i.e. utilities, water & waste management, and power services.

In fact, she sees a “positive indirect impact” given the group’s expertise in the development of industrial parks, which positions SCI to benefit from more company relocations from China to peripheral economies such as Vietnam.

Vietnam is particularly highlighted as a potential growth area for SCI in this respect for its competitive labour market, tax incentives, and improved access to other markets with its multiple trade agreements, in Low’s view.  

“SCI has a long history in Vietnam, as the first Vietnam-Singapore Industrial Park (VSIP) celebrated its 20th anniversary just a few years ago… There will also be higher electricity growth as Vietnam’s economy expands. This is the same for Thailand, though SCI has no significant presence there,” she adds.  

As at 11:46am, shares in SCI are trading 1 cent higher at $2.39 or 4.01 times FY19F EV/EBITDA.