Sembcorp Industries struggles as Singapore power business loses spark

It's banking on overseas utilities for now.

Analysts warn that Sembcorp Industries' utilities business will continue to suffer in the upcoming quarters, after the group reported extremely disappointing results in the first quarter.

Maybank Kim Eng analyst Yeak Chee Kong noted that intense competition in the power market lopped 42% year-on-year off Singapore utilities’ net profit.

CIMB analyst Lim Siew Khee stated that the weakness was due to lower power prices from lower vesting contract level, lower oil prices and higher depreciation from the new Banyan cogen power plant, which had a capex of around $600m.

"Power segment will be weaker in 2H15 as VC declines from 30% to 25%. More allocated vesting customers will be converted to retail contracts that are based on lower rates given the current market condition," Lim noted.

As the profits from the Singapore power sector continues to deteriorate, OCBC analyst Low Pei Han noted that the company will have to bank on overseas utilities for now.

"2015 is expected to be challenging for the Singapore energy business with continued intense competition in the power market as well as low oil prices. The overseas business, however, is expected to continue to deliver a steady performance,” Low wrote.