Sembcorp Industries Investor Day 2023: 5 Things Investors Need to Know

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It has been nearly two and a half years since Sembcorp Industries’ (SGX: U96), or SCI, Investor Day 2021.

Back then, the utility giant set 2025 targets for growing its renewables and urban integrated solutions portfolios and achieving a return on equity of at least 10%.

Fast forward to today, and SCI has announced its new 2023-2028 strategic plan along with a set of new targets to transform its portfolio from brown to green and achieve lower emissions.

We look at five interesting aspects of the blue-chip group’s latest Investor Day targets.

1. Growing its renewables portfolio, cutting its emissions

Looking back at SCI’s targets back in 2021, the group wanted to grow its renewables portfolio from 2.6 GW in 2020 to 10 GW by 2025.

As of 30 September 2023, the utility group has achieved this target with a total gross renewables capacity of 12 GW for both installed (8.7 GW) and under construction (3.3 GW).

Management has raised the bar much higher for 2028.

Its target in five years is to grow its gross renewables capacity to 25 GW, close to triple the current installed base of 8.7 GW.

This implies a compound annual growth rate (CAGR) of 22% and its strategy is to deepen its presence in key growth markets.

Both China and India have been identified as SCI’s key renewables growth markets.

China is the largest renewables market with a 17% CAGR between 2023-2028 while India enjoys the same 17% CAGR over the next five years as the second-largest renewables player.

At the same time, SCI also plans to halve its emissions intensity from its forecasted 2023 level of 0.3 tCO2e/MWh to 0.15 tCO2e/MWh by 2028.

2. A new CEO for Urban Development

Moving on to the group’s Urban Development segment, management is candid in admitting that its performance has not met expectations.

However, SCI believes that market potential remains with persistent demand from both Vietnam and Indonesia.

The division will continue to build its land bank and has appointed a new CEO with the overall strategy under review.

Stable performance is expected from this division.

3. S$14 billion to be invested

Source: SCI’s Investor Day 2023 Presentation Slides

SCI has announced a S$14 billion capital allocation plan to achieve its 2028 objectives.

This amount will be allocated over the next five years with the bulk (75%) going towards growing its renewables portfolio.

10% of the amount will go towards decarbonisation solutions where the group will explore and expand its offerings (more details in section 5).

8% of the S$14 billion will go towards replacement capital expenditure and hydrogen-ready assets while 5% of the funds will be channelled to the Integrated Urban Solutions division to bulk up its land bank.

SCI has good access to various funding sources and half of the S$14 billion will be funded by operating cash inflows.

30% will be funded with project debt with the remaining 20% through corporate debt, capital recycling, and partnerships.

4. A wellspring of recurring income

SCI’s operating cash flow generation will hinge on its multiple long-term power purchase agreements (PPAs) with its customers.

These long-term PPAs enable its portfolio to generate a wellspring of stable, recurring income.

Its gas portfolio, in particular, is contracted at a weighted average duration of 12 years, helping to insulate it against regulatory interventions.

5. Hydrogen, green ammonia and GoNetZero

With SCI planning to invest S$1.4 billion in decarbonisation solutions, let’s dig deeper into some of these initiatives.

Hydrogen is a great example of a low-carbon feedstock and the utility giant is projecting rapid demand for the gas.

660 million tonnes of hydrogen are required to achieve SCI’s net zero goal by 2050, more than seven times the 2020 hydrogen demand of 90 tonnes.

SCI can provide a pathway for Singapore to diversify its future energy mix to help decarbonise the power sector.

Green ammonia is another feedstock that SCI is positioning for use, with renewable power to be produced in Gujarat (solar and wind).

The GoNetZero initiative is not just limited to SCI’s 2050 ambition; more than 140 countries and 7,200 companies have also made this net zero commitment.

SCI intends to tap on its GoNetZero platform to provide a range of end-to-end solutions to address customers’ requirements to pursue this objective.

For 2023, this division is projected to report a revenue of S$18 million and SCI believes that it can grow 20-fold by 2028 to achieve a revenue of S$400 million.

Get Smart: An improvement in profits and increase in dividends

Since SCI embarked on its renewables growth plan and stated its intention of deriving a larger portion of its net profit from renewable solutions, the group has reported increased profitability.

SCI’s last 12 months net profit (before exceptional items) stood at S$952 million, nearly triple the level of S$339 million back in 2018.

The group’s annual dividend per share has also tripled from just S$0.04 in 2018 to S$0.12 in 2022.

Time will tell if SCI can execute its 2028 goals, but if it does, investors can look forward to higher profits and dividends in due course.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

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