Should Sembcorp be ruffled by rising power market competition?

About 7% of its profit comes from power generation.

The increasing competition in the Singapore power market, and execution hiccups in India power plants could spell trouble for Sembcorp, according to a report by DBS.

In 2014, total power generation supply in Singapore climbed 9.3% YoY, reflecting the biggest YoY surge since the electricity market started. 2015 heralds a similar supply growth spurt, which could further drag down prices and chip at Sembcorp’s bottom line. But as power generation accounts for less than 10% of Sembcorp earnings, the impact will probably not be significant.

Meanwhile, the second unit of Sembcorp’s India power plants has been grappling with availability of power purchase agreements (PPA). It was completed in September 2015, but it has yet to win a PPA. DBS asserts, however, that the unit is in a suitable position to secure a PPA soon.

As it stands, there are still drivers Sembcorp can hope will boost earnings.

For instance, its new facilities could bolster power generation and water treatment capacities, and Uniform Singapore Energy Prices could pick back up. 

Also, despite recent delays in China land sales, there remains a glimmer of better sales momentum in its urban development segment.

More importantly, an oil price rebound could ease some of the pressure caused by the looming possibility of further deferments and cancellations on its marine business orderbook.