Brokers' take: Sembcorp a 'classic' for ESG investment

CGS-CIMB on Wednesday called Sembcorp Industries (SCI) a "classic stock" for environmental, social and governance (ESG) investment in the longer term given its proper communication of its renewable energy plans.

This came after SCI's management stated on Tuesday that it is keen to shift the current renewable/thermal mix of 40/60 profit contribution in the medium term, details of which will be revealed at an "investor day" slated for May 2021.

"We see this as a key catalyst as SCI's position in the renewable energy and urban solutions market is unmatched in the region," CGS-CIMB said in a research note.

CGS-CIMB has reiterated "add" on the stock, with a slightly higher target price of S$1.97 from S$1.95 previously. SCI also trades at 0.8 times its P/BV (price-to-book value), cheap when stacked against regional power or utility plays - which are trading at around 1.8 times, CGS-CIMB noted.

Meanwhile, UOB Kay Hian (UOBKH) maintained its "buy" call on SCI, with a lowered target price of S$2 from S$2.02 previously. It raised its target price-to-book multiple to one times from 0.9 times previously and pegged this to SCI's 2021 book value per share of S$2.

SCI's results were in line with UOBKH's expectations. SCI had recommended a dividend of four Singapore cents per share - better-than-expected for the research team which had projected 2.5 cents per share.

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Moving forward, UOBKH projects a 30 per cent payout ratio for SCI, implying a 3 per cent yield for 2021. It has upgraded its earnings forecasts for the conglomerate's fiscal 2021 and 2022 by 14 per cent and 4 per cent respectively.

"In the past two years, SCI has built up its renewables portfolio, some of which will come to fruition in the near term," UOBKH said.

In light of better-than-expected performance from SCI's energy business, the UOBKH research team has raised its net profit margin expectations to 5.5 per cent from 5 per cent for the segment for FY2021, and 6 per cent from 5.7 per cent for FY2022. UOBKH also expects overall year-on-year demand recovery for both energy and utilities.

The earnings upgrade was however tempered by the loss of income from divested assets in Panama and Chile, UOBKH said.

DBS Group Research has reinstated its coverage on SCI with "buy", with a raised target price of S$1.85 from S$1.70 previously. It noted that SCI is nearing a perfect turnaround and is well-positioned to leverage the global focus on renewable energy.

SCI shares closed flat at S$1.66 on Wednesday.