SembCorp Industries

4Q07: Disappointing flat earnings guidance for FY08.

SCI reported a net profit of S$151.8m (-61% yoy) and S$526.2m (-49% yoy)

for 4Q07 and FY07 respectively. SCI has declared a DPS of 15cts.

Excluding exceptionals, net profit would have been S$182.8m (+42% yoy)

and S$557.2m (+46% yoy), respectively. Tax write-backs totalled S$56m.

FY07 net profit excluding exceptionals and tax-write-backs would have been

S$501.1m (+24% yoy). Management is guiding flat earnings (ex

exceptionals) in FY08, despite a strong earnings growth in SembCorp Marine

(SMM). SCI ?expects to maintain its FY07 PATMI before exceptional items

excluding the one-off tax write-back?.

Management expects utilities earnings to fall in FY08, due to lower profits

from its UK utilities business on a weaker sterling pound. Moreover, one of

its UK?s gas supply contracts will be renewed in March this year on higher

prices. Our FY08 and FY09 earnings forecasts remain relatively unchanged

and we initiate our FY10 forecast at S$647.0m. We lower our fair value by

13% from S$5.75 to S$5.00 based on a revised sum-of-the-parts valuation of

S$5.07/share. This revision is due to an earlier revision of our target price for

SMM from S$4.65 to S$4.20. We remain neutral on SCI and prefer

SembCorp Marine (BUY/Target: S$4.20).