It has been a fantastic run for Sembcorp Industries’ (SGX: U96), or SCI, share price this year.
The blue-chip utility group has seen its stock surge 48.3% year-to-date to close at S$5.10.
At the current level, the share price is just 16% below the 52-week high of S$6.09 attained back in early August.
This rise adds to the stock’s 72% climb in 2022, allowing SCI to chalk up an impressive 155% share price return since the beginning of last year.
With the group announcing promising corporate developments in the past few months, could investors see SCI’s share price scale new heights?
Let us dig deeper to find out.
A slew of contracts
Throughout the year, SCI has garnered a slew of contracts and inked various collaborations to grow its business.
Back in February, its subsidiary Sembcorp Power secured a long-term power purchase agreement (PPA) with Micron’s (NASDAQ: MU) Asian division.
The contract is an 18-year agreement to supply Micron with up to 450 MW of power.
A month later, the utility group completed its acquisition of 795 MW of solar assets in China and inked its maiden greenfield renewables project in the Middle East.
This contract is for a 500 MW solar power plant that will be operational by 2025 and is backed by a 20-year PPA with the Sultanate of Oman.
In the same month, SCI also signed a memorandum of understanding with nine provinces in Vietnam to develop smart and sustainable industrial parks.
The group also closed the acquisition of another 892 MW of renewable wind and solar assets in China, taking its renewables portfolio to 10.3 GW.
In May, SCI signed another PPA, this time with Singtel (SGX: Z74), for a decade commencing October 2023.
The group will also develop a new multi-utilities centre on Jurong Island that will include a 600 MW hydrogen-ready power plant.
Construction of this facility will commence in the second half of this year and the facility should be operational by 2026.
Just this month, SCI inked a gas sale agreement with West Natuna Exploration Limited for the Mako gas field in Indonesia.
These contract wins, along with the signing of PPA and gas sales agreements, will help SCI to steadily build up its recurring income contribution in the years ahead.
Shifting from brown to green
The group’s overarching goal communicated back during its 2021 Investor Day, is to slowly transform its portfolio from brown to green (i.e. shifting from fossil fuels to renewables and cleaner energy).
SCI had set a target for its renewables gross installed capacity to reach 10 GW by 2025.
It has successfully achieved this milestone two years early with gross installed capacity plus capacity under development touching 11.9 GW as of the first half of 2023 (1H 2023).
There will be more opportunities for SCI to grow its renewables portfolio further as it establishes itself as the vendor of choice for solar and wind assets.
However, it still has some way to go in reaching its 2025 target of having 70% of its net profit derived from sustainable solutions.
For 1H 2023, the proportion stood at just 27%.
SCI is also mulling the sale of SembWaste, its waste management unit, and is working with a financial advisor to see if they can raise US$700 million from its divestment.
Dividends are on a rebound
For income-focused investors, there is good news as SCI has upped its dividends in tandem with its stronger results.
1H 2023 saw the utility giant report a 56% year on year jump in net profit with its interim dividend rising from S$0.04 to S$0.05.
The group saw its annual dividend hit a trough in 2020 at S$0.04.
2021 saw a 25% year on year jump in total dividends to S$0.05 while 2022 saw the annual dividend more than double to S$0.12.
Should SCI continue to report strong earnings, it may even up its final dividend beyond the S$0.08 paid out last year or declare a special dividend.
Get Smart: Learn more at SCI’s Investor Day
Investors may be pleased to note that SCI was added to the MSCI Singapore Index starting from 1 September.
This index has 22 constituents and is designed to measure the performance of mid and large capitalisation companies within the Singapore market.
After snagging multiple contracts and establishing partnerships and collaborations with various parties, SCI’s future looks bright.
The group will share more during its 2023 Investor Day to be held on 6 November.
Investors should look forward to SCI’s updated renewables target and hear more about its plans to achieve a higher proportion of its net profit from renewables.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
