Grim outlook ahead for Sembcorp's energy arm

The downtrend will last for the rest of the year.

Sembcorp sees a “markedly lower” performance in its energy business for this year as demand and prices fall due to the coronavirus pandemic, a bourse filing revealed.

Whilst its energy arm remains anchored by long-term contracts, market lockdowns and lower power demand in Singapore, India and the United Kingdom will contribute to the downtrend that is expected to last for the rest of the year.

In addition, the decline in energy prices has significantly reduced the net realisable value (NRV) of the inventory of Singaporean gas oil reserves that is required to fulfill certain regulatory requirements.

A currency transaction loss from the divestment of its water business in Chile, expected to be completed in Q3, will also hurt net profit.

The pandemic has also hit Sembcorp’s urban business, particularly land and property sales. The uncertain economic outlook is expected to result in a lower take-up and demand, or delayed launches for some integrated developments and properties. Marine activity levels remain muted as the low oil prices on final investment decisions will adversely affect new orders.

Nevertheless, the group hopes to sustain a positive operating cash flow this year due to its long-term contracts and diversified portfolio.