Next in line to report its 2023 is Sembcorp Industries Ltd (SGX: U96), or SCI.
The blue-chip energy and urban solutions provider did not disappoint.
Not only did the group report a higher core net profit, but it also doubled its final ordinary dividend.
SCI’s shares have surged 53.7% in the past year, making it one of the best-performing stocks in the Straits Times Index (SGX: ^STI).
Here are five highlights from the utility group’s latest earnings that investors need to know.
1. A mixed set of results
For 2023, SCI reported a 10% year-on-year decline in revenue to S$7 billion.
The lower revenue was due to lower gas sale prices in Singapore along with lower power prices in the UK which negatively impacted the Gas and Related Services division.
Net profit, however, climbed 38% year on year to S$1 billion.
If exceptional items and profits and losses from discontinued operations are included, SCI’s core net profit would have risen by 11% year on year to S$942 million.
The group generated a positive free cash flow* (please refer to editor’s note at the end of this article) of S$645 million for 2023, though this was nearly 38% lower than the S$1 billion of free cash flow generated in the prior year.
SCI’s core return on equity (ROE) stood at an impressive 23.8% for 2023, higher than the 19% registered in 2022.
The Gas and Related Services division contributed to the increase with a 40.7% ROE, followed by 11% for the Renewables segment.
2. Signing long-term power purchase agreements
Revenue for SCI’s Gas and Related Services division fell by 17% year on year to S$5.5 billion because of the reasons stated above.
Despite the weaker revenue, net profit jumped 30% year on year to S$809 million.
The division has enhanced its earnings and cash flow certainty with the signing of several long-term power purchase agreements (PPAs).
Some examples of the PPAs signed include an 18-year PPA with Micron Semiconductor (NASDAQ: MU) to supply 450 MW of power and a 10-year PPA with Singtel (SGX: Z74) with an annual estimated contract value of S$180 million.
For Singapore’s gas portfolio, SCI has an average contract tenure of 12 years.
The division is also diversifying its gas supply with a S$1.9 billion gas sales contract to import natural gas from Indonesia.
3. Steadily growing its renewables installed capacity
The Renewables division saw revenue climb 40% year on year to S$703 million as its gross installed capacity continued to rise.
Net profit for the division surged by 42% year on year to S$200 million.
Source: SCI’s 2023 Presentation Slides
The division has made good progress in growing its renewables portfolio, judging by the slide above.
Total capacity, including both installed and under construction, rose from 9.8 GW at the end of 2022 to 13.8 GW as of February 2024.
Management continues to target gross renewables capacity of 25 GW by 2028, a goal that was set during its 2023 Investor Day.
4. Building up its land bank
For SCI’s Integrated Urban Solutions division, revenue dipped by 6% year on year to S$418 million because of the cessation of a public waste management contract in Singapore.
Net profit fell by 19% year on year to S$121 million.
The tumble in the division’s earnings was because of lower year-on-year contributions from the sale of commercial and residential units.
The division continues to build up its land bank with three new investment licences totalling 1,290 hectares.
For water treatment, the volume of water treated rose slightly to 611 million cubic metres while earnings for this sub-division increased if a one-off termination fee is excluded from 2022’s numbers.
SembWaste, SCI’s waste collection sub-division, entered into strategic partnerships and initiatives to promote recycling, resulting in a 25% increase in the amount of recyclables collected.
5. Doubling of its final ordinary dividend
In line with the better results, SCI declared a final ordinary dividend of S$0.08, double the S$0.04 that was paid out a year ago.
2022 saw a special dividend of S$0.04 along with an interim dividend of S$0.04, bringing that year’s total dividend to S$0.12.
The group paid out an interim dividend of S$0.05 for 2023.
Together with the final ordinary dividend of S$0.08, the total dividend for 2023 will be S$0.13 for an 8.3% year-on-year increase.
Get Smart: A bright outlook
SCI offered a bright outlook for 2024.
With its multiple contracted positions, the Gas and Related Services division is expected to report robust earnings.
However, contributions to this division will be affected by two events this year.
The first is the cessation of contribution from Phu My 3 BOT Power Plant at the end of February 2024.
The second is the planned major maintenance for Singapore’s cogeneration plants for around 60 days in the first half of this year.
The Renewables segment should do well this year with more greenfield acquisitions commissioned and brownfield acquisitions completed while the Integrated Urban Solutions division should maintain its stable performance.
Source: Sembcorp Industries’ FY 2023 Presentation Slides
*Editor’s Note: The slide above shows SCI’s calculation for free cash flow which includes the various items stated within the “Cash Flow from Investing Activities”. Note that this method of calculation differs from how we have calculated the free cash flow, which is based on the Operating Cash Flow minus capital expenditure for Property, Plant and Equipment as well as intangible assets.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
