Sembcorp Industries' Indian utility poses threat to earnings

It needs to secure long-term power purchase agreements.

India will be Sembcorp Industries (SCI)’s key source of earnings growth over FY17-18E but its inability to secure long-term power purchase agreements (PPAs) for its coal-fired power plant, Sembcorp Gayatri Power (SGPL) could be a swing factor, said MayBank KimEng.

SCI reported 3Q16 PATMI of SGD53.9m (-56% YoY, -38% QoQ) missed due to Sembcorp Marine’s losses, but the Utilities segment met the research house's expectations as India’s TPCIL finally started to deliver

"9M16 PATMI of SGD247.4m (-49% YoY) formed 53% of both our and consensus FY16E. We cut FY16-18E profit by 6-23%, mainly for SMM’s earnings adjustments," it said.

India’s TPCIL power plant recorded 9M16 net profit of SGD7m. MayBank KimeEng notes that this suggests that the bulk of its profits were earned in 3Q16 as it just about broke even in 1H16.

TPCIL now has 86% of capacity under long-term power purchase agreements (PPA) and it expects contribution to steadily improve.

Sembcorp Green Infra registered 9M16 net profit of SGD19m, also from better 3Q16 performance due to seasonally high wind load.

However its second India coal-fired power plant, SGPL lost SGD4m due to start-up expenses.  SGPL suffered technical issues during start up for its first unit in 3Q16 and had to be shut down. 

Commercial operation dates for its 2 x 660MW units are now deferred by a quarter to 4Q16 and 1Q17, respectively. It still has not secured any long-term PPAs, but has added another 550MW of short-term contracts, bringing short-term PPAs to 938MW.