Why Vietnam is key to Sembcorp's growth

Vietnam and China contributed 90% of the $86m urban development net profit in FY18.

Sembcorp Industries' business in Vietnam is expected to play a key role in sustaining the firm's growth trajectory as the country emerges as one of the key benefactors to the US-China trade dispute, through its 49%-owned subsidiary VSIP, according to an analyst report by CGS-CIMB.

“[U]rban development is in a sweet spot to ride on the potential rise in MNC investments in Vietnam as a result of the trade war. In the past two years, Vietnam has been a preferred location in ASEAN over Thailand and Indonesia for its relatively stable currency, social sentiments and politics,” said Siew Khee Lim, an analyst at CGS-CIMB.

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The urban development division generated $86m of Sembcorp’s net profit in FY18, with Vietnam and China contributing 90% of urban development net profit. Growth prospects can be sustained on the back of 504 hectares of order book (deposits paid) in urban development to be recognised over the next 2-3 years. Furthermore, the management targets to sell 200-300 hectares of land pa, with the need to replenish 1,000 hectares of land pa. 

VSIP has 7,409 hectares of landbank (c.2,500-hectare sellable land) dedicated for integrated township and industrial park development. The report noted that Sembcorp’s 55% owned condominium Habitat, located within VSIP I, has seen an approximately 40% surge in average selling price since 2017 to US$1,400 psm as demand continues to pick up.

In addition, Sembcorp is currently developing Sun Casa (383 units) in VSIP II, which is expected to be completed in 2020.