Blue-chip stocks are setting the tone for this earnings season with many of them reporting higher year-on-year profits.
Two weeks ago, United Overseas Bank (SGX: U11) delivered a strong set of earnings and hiked its dividend by 42%.
Last week, DBS Group (SGX: D05) saw its return on equity hit a record high while OCBC Ltd (SGX: O39) also reported robust earnings growth.
Sembcorp Industries Limited (SGX: U96), or SCI, joins this group of stocks in reporting a sharp jump in net profit.
The utility giant had released its 2023’s first-half (1H 2023) earnings and is focused on the execution of its transformation strategy.
Here are five highlights from SCI’s latest financial report.
1. A mixed set of earnings
SCI turned in a mixed set of results for 1H 2023.
Revenue dipped by 6% year on year to S$3.7 billion but net profit surged by 56% year on year to S$608 million.
Around S$122 million of income was contributed by a deferred payment note arising from SCI’s sale of its Indian unit to Tanweer Infrastructure for around US$1.47 billion last year.
Of the group’s three main divisions, Renewables posted a strong 71% year on year jump in revenue to S$379 million.
However, Integrated Urban Solutions (IUS) witnessed a 5% year on year dip in revenue to S$206 million while the Conventional Energy division suffered a 13% year-on-year fall in revenue to S$2.9 billion.
Free cash flow for the utility group also fell slightly from S$394 million in 1H 2022 to S$376 million in 1H 2023.
2. Growing its renewables capacity
SCI’s Renewables division looks set to be its new growth engine.
Not only was it the only division within the group to post a year-on-year revenue jump, but net profit for the segment also surged by 54% year on year to S$117 million.
Gross renewables capacity has risen further to 8.6 Gigawatts (GW) as of 30 June 2023, up from 8.3 GW six months ago.
If capacity under development is included, SCI’s gross renewables capacity will be 11.9 GW, forming 61% of the group’s total installed capacity.
Key contributors to the growth in renewables capacity include completed acquisitions of a 583 MW portfolio for Vector Green in India, a 49% stake in a 795 MW solar portfolio and a stake in an 892 MW wind and solar portfolio, both in China.
Meanwhile, the division also owns a 750 MW concentrated solar power project in Gansu, China, that is expected to be completed by 2024.
3. A weaker performance for Integrated Urban Solutions
The IUS division posted lower year-on-year revenue and saw a 23% year on year decline in net profit to S$48 million.
The weaker performance was because of lower land sales in Vietnam coupled with lower contributions from its waste business in Singapore.
However, Indonesia enjoyed higher land sales in line with higher manufacturing activity as the economy reopened after pandemic restrictions were lifted.
That said, the China property market remains challenging for the division.
4. Good prospects for Conventional Energy
The Conventional Energy division is seeing enhanced earnings visibility with the signing of long-term power purchase agreements (PPAs).
Two have been signed with Micron Semiconductor (NASDAQ: MU) and Singtel (SGX: Z74) for an 18-year and 10-year PPA, respectively.
The division will also augment its existing gas supply with a S$1.9 billion gas sales agreement to import natural gas from Indonesia for four years beginning in 2024.
Elsewhere, SCI is also developing a new multi-utilities centre and a 600 MW hydrogen-ready facility on Jurong Island.
The division also reported a higher net profit of S$435 million for 1H 2023 compared with S$296 million a year ago because of higher electricity prices.
Management expects the division to deliver a stable earnings profile with longer-tenure PPAs in Singapore.
5. Slightly higher interim dividend declared
There is good news for income-seeking investors as SCI declared a higher interim dividend for the second consecutive year.
For 1H 2021, the group’s interim dividend was S$0.02 but this was doubled in 1H 2022 to S$0.04 per share.
This round, SCI has increased its interim dividend further to S$0.05 per share.
Coupled with last year’s final and special dividends totalling S$0.08, the total trailing 12-month dividend is S$0.13, giving SCI’s shares a trailing dividend yield of 2.3%.
Get Smart: SCI’s Investor Day 2023
Prospects look good for SCI’s Renewables division as it continues to grow its gross installed capacity.
Investors should tune in to the group’s next Investor Day for 2023 on 6 November to get more details on the utility giant’s growth plans.
It should also be providing an update on the progress of its 2025 goals as outlined in its 2021 Investor Day.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
