Despite Sembcorp Industries’ positive 1HFY2021 results ended June 30, Phillip Securities has slashed its FY2021 earnings forecast the energy company by 34%.
The lower forecast, the brokerage says, accounts for the 1HFY2021 impairments of $212 million and lower conventional energy earnings in 2HFY2021 ended Dec 31.
See also: Analysts keep optimism on Sembcorp after positive 1H results
The brokerage has also lowered its target price for Sembcorp to $2.01 from $2.07 previously and maintained its “neutral” rating for the stock.
Phillip warns that Sembcorp’s longer-term outlook remains challenging.
The company, it says, faces persistent uncertainties surrounding the recovery from Covid-19, intense competition from other global utility companies and the expiry of long-term contracts.
In particular, the expiry of long-term contracts is expected to affect Sembcorp’s earnings by around $100 million in the next five years.
Phillip says the impact on the company’s earnings is expected in Singapore as the local natural gas contracts approach expiry in 2028.
For more stories about where the money flows, click here for our Capital section
The Phu My 3 power plant in Vietnam also faces reducing tariffs as its power purchase agreement approaches expiry in 2024, it adds.
As at 11.29 am, Sembcorp was down 1 cent or 0.5% at $1.95 with 2.2 million shares changed hands.