SembCorp Industries: Buy (Citi Research, 7 Aug)
SCI's 2Q09 results of $142m profit (+6% qtr-on-qtr, +3% year-on-year) beat our estimates. Oil & Marine remained the key profit driver, accounting for 60% of profits (vs. 57% in 2Q08) while Utilities profit reached $48m, in-line with our forecast. Industrial parks (S$7m profit) was unchanged yoy. Revenue reached S$833mn, down 25% yoy largely due to lower HSFO prices while PATMI increased 11% yoy to S$48mn. Both China and the Middle East performed well while Vietnam Phu My 3 power delivered sterling strong profit growth on the back of a 15% tariff increase, and contributed "double-digit" profit. Overseas operations now contribute about 45% of sales. Singapore PATMI declined 31% yoy to S$29m due to absence of fuel sales (S$15m) and tax write-back (S$3.8m) enjoyed in 2Q08. Proposed closures by Dow Chemical, Croda and Invista at Teeside would affect ~30% of UK revenue by 2010. The strategy now is to reconfigure the assets, cost structure and secure new income streams. SCI has had measured success so far, with three new customers expected to come onboard and help to partially offset the weakness. Growth prospects in the UK remain muted in 2010, but this is already captured in our assumptions and more than priced in, given the about 40% Utilities discount to peers. We have trimmed Utilities EPS by 5-8% but raise our group EPS estimates by 12-21% for FY09-11E, factoring in stronger SembMarine contribution. We have raised our target price for SCI from S$3.40 to S$3.95.

SembCorp Industries: Buy (UBS Investment Research, 7 Aug)
SCI's Q209 earnings were broadly in line with expectations and there is a sense that operating conditions have started to improve to pre-crisis levels for SCI’s utilities business in Singapore, China, Vietnam and the Middle East. However, we are concerned about customer withdrawals at SCI's UK business, which accounts for about 22% of H109 utilities earnings (15% of group), as the issues are structural – we expect permanent impairment to parts of the current business model. Three major customers which account for 30% of SCI's UK revenue, Dow Chemicals, Croda and Invista, will be pulling out of the UK site by 1Q2010. The fate of a 4thh customer, Artenius, is unclear due to its parent's credit issues. We are concerned that further departures might follow. We estimate profits from UK will fall from £27m in 2008 to £19m in 2009, and could fall further to £8.5m in 2010. Using simple DCF, we think this impacts SCI's valuation by about S$0.28/SCI share. SCI's ex-SembMarine valuation is not aggressive but we think the dent in earnings confidence would weigh on the stock. Although we cut group 2010E net profit estimates by only 5% for the loss of earnings, this does not yet include staff restructuring costs nor impairment charges on assets. Sum of parts based price target maintained at S$4.04 remains unchanged despite UK impact as the market values of SCI's stakes in SMM and Gallant Venture have risen.

SembCorp Industries: Buy (Deutsche Bank, 6 Aug)
SCI's 1H09 net income was up 5.5% to S$276m, largely contributed by the Marine business, which grew 18% yoy to S$159m. Utilities net income was down 5% yoy to S$99m partly due to the UK operations, following the expiry of the favourable supply contracts. Valuations remain attractive; SCI highlighted that three customers (30% of UK utilities revenues) are planning to shut down by early 2010. Management is currently reconfiguring assets to secure other income streams (replacing steam demand with more power and maximizing green credits). While the new SABIC, Ensus and Yara plants are expected to come on stream in 2H09/1H10, we believe they can only partially offset the closures. Utilities as a division, however, is seeing strong growth in Vietnam (tariffs up by 15%), China and the Middle East, which collectively saw 1H09 net earnings increase 145% yoy to S$20m. Centralised Utilities in Singapore has also seen solid demand for steam with 90% of the customers operating at full load. While 1H09 PATMI for the Singapore operations was down 13% yoy to S$60.7m, this was largely due to 1H08 benefiting from the sale of strategic fuel and higher gas transportation costs following the transfer of pipeline back to the government. SCI provides a combination of stability (through its utilities business) and growth (from its Marine division), and is backed by strong fundamentals. Our SOTP yields a target price of S$4.20. Downside risks include the execution of its projects, unforeseen market risks in the countries in which it has invested, and sustained credit problems or contract execution failures for SMM.