The stock market is reeling from the effects of higher interest rates and the Russia-Ukraine war.
But these troubles don’t seem to have dampened investors’ mood toward Sembcorp Industries Limited (SGX: U96), or SCI.
The leading energy and urban solutions provider saw its shares hit a three-year high recently at S$2.85, exceeding the S$2.74 it was trading at on 12 April 2019.
To be sure, the share price is still around half of the level the group traded at back in September 2012.
For context, a decade ago, oil prices were still riding high above US$100 per barrel (see chart below) and its then-subsidiary, Sembcorp Marine Limited (SGX: S51), or SMM, was performing well.
Source: Marcotrends.net
With SMM trading as a standalone company and oil prices surging nearly five-fold from their low two years ago, could SCI revisit the highs it set a decade ago?
A splendid set of earnings
SCI reported a splendid set of earnings for its fiscal 2021 (FY2021).
All three of its core business divisions saw year on year increases, resulting in group revenue surging by 78% year on year to S$7.8 billion.
The group also declared and paid out a total dividend of S$0.05 for FY2021, 25% higher than the S$0.04 that was paid in FY2020.
It’s impressive to note that SCI’s FY2021 net profit excluding exceptional items, at S$472 million, has even surpassed its 2019 level of S$456 million.
What’s more, the group’s free cash flow has also enjoyed a more than five-fold jump from S$158 million in FY2020 to S$929 million in FY2021.
The pivot towards renewables
SCI is focused on pivoting its order book towards renewable energy as part of its commitment to a sustainable future.
Its Investor Day back in June last year detailed plans to transform its portfolio from “brown to green” and to increase the profit contribution from sustainable solutions from 40% to 70%.
The group also detailed ambitious goals to halve its greenhouse gas emissions by 2030 and achieve net-zero emissions by 2050.
To be fair, SCI still has some way to go for its renewables division.
As of FY2021, this division made up 4.5% of revenue and 11.9% of net profit before exceptional items.
The gross installed capacity for renewables has more than doubled from 2.6 gigawatts (GW) in 2020 to 5.3 GW in early 2022.
The group’s target is to work towards 10 GW of installed capacity by 2025.
Deepening its green footprint
The blue-chip urban solutions provider has been busy working towards this goal.
It launched a green financing framework almost a year ago to tap on green bonds that can help finance eligible green projects.
A month later, SCI successfully launched its inaugural S$400 million green bond with a coupon rate of 2.45%.
Since then, the group has secured a series of contract wins with a variety of partners.
It will collaborate on the development of the UK’s first net zero-emissions power plant with US innovation firm 8 Rivers Capital.
In October last year, the group was awarded a contract for a 180 megawatt (MW) wind power project in India.
Later that month, it partnered with Batam’s utility company PT PLN Batam and renewable energy developer Surygen to jointly develop a large-scale integrated solar and energy storage project in Indonesia.
SCI has also been active in acquiring renewable energy assets.
In November, it acquired 658 MW of operational wind and solar assets in China while in December, it purchased a 35% stake in 1.9 GW of operational wind cum solar assets in the same country.
Other business initiatives
Aside from these moves to bulk up its renewables portfolio, SCI has also been busy on other fronts.
The group launched Singapore’s first solar-powered electric vehicle (EV) charging hub at its Tuas depot last July.
This move is in line with the Singapore Government’s goal to phase out internal combustion engines by 2040.
Last month, SCI also broke ground on a new sustainable industrial park concept in Binh Duong province in Vietnam.
Get Smart: Contributions to flow through gradually
The group has certainly been busy with a slew of business development efforts over the past year.
However, investors should note that the contributions from these moves may require time to flow through SCI’s income and cash flow statements.
Investors are lauding the group’s business efforts but the financial impact of these acquisitions may only be seen in FY2023 and beyond.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
