Sembcorp Industries Stock: Is it a Buy After Another Renewables Purchase?

Clean energy dividend stock

Tim Phillips

November 21, 2022

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Green, or renewable, energy is set to become the investing megatrend of the 2020s. Granted, that hasn’t worked out so far for investors in 2022.

Yet, the seeds of growth are there. Late last week, I wrote about how Singapore-listed power giant Sembcorp Industries Limited (SGX: U96) was acquiring two more renewable energy assets.

Then the Straits Times Index constituent company announced last Thursday evening (17 November) that it was to buy another renewable energy portfolio in China – totalling 892 megawatts (MW) of gross renewables capacity.

That would make it an incredible announced three deals in the space of one week. It’s perhaps a sign of the phenomenal growth potential that Sembcorp Industries management sees.

So, here’s what investors need to know about the latest acquisition by Sembcorp Industries and whether this emerging Singaporean renewable energy giant’s shares are a buy.

Sembcorp acquires more China wind and solar

Sembcorp Industries announced that it would be acquiring a 45.3% interest in Hunan Xingling New Energy from Wuling Power for a total consideration of RMB 1.06 billion (S$204 million).

Wuling Power is an affiliated company of State Power Investment Corporation (SPIC) and holds the remaining 54.7% interest in Xingling New Energy.

Xingling New Energy itself owns a portfolio of wind and solar assets, comprising 830MW of installed renewable capacity and 62MW under development in Hunan and Guizhou provinces.

Upon completion, Sembcorp Industries will reach 9.4 gigawatts (GW) of gross installed renewables capacity. That will take it even closer to its 2025 target of 10GW.

It’s the clearest signal yet that Sembcorp Industries management is bullish on the renewables landscape in both China and India.

With the latest deal, over 90% of Sembcorp Industries’ solar and wind assets – by generating capacity – will be located in the two countries (see Figure 1 below).

Sembcorp Industries renewable assets

China potential for Sembcorp Industries

From the past year or so, as Sembcorp Industries moves its portfolio from “brown to green”, it’s clear that China has been a focus for the company’s growth plans.

In its press release on the latest deal, Sembcorp Industries Group President & CEO Wong Kim Yin stated that:

“SPIC is the largest renewables players in the world with over 80GW of installed capacity. We look forward to expanding on this deal to broaden our strategic partnership with SPIC, especially in renewables and green energy”.

Sembcorp Industries said it expects the deal to close in the first half of 2023. The average asset age of the proposed renewables portfolio is five years and around 60% of contracts are eligible for government subsidies.

Are Sembcorp Industries shares a buy?

So, with the three latest announced deals, Sembcorp Industries has added 2.27GW of renewables capacity to its portfolio.

That makes it likely that the “10GW by 2025” goal will need to be revised fairly soon. Even better, these recently-purchased assets will be mostly immediately cash flow-generative.

Management has also said it doesn’t plan to pursue any equity fundraising to finance these latest deals.

While shares are up over 50% so far in 2022, the company is still trading a valuation discount to its regional listed renewables peers.

Add in an expected 4% dividend yield for FY2022 and investors are buying into a company with a strong growth runway over the next decade – while also getting paid to wait for the story to play out.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Sembcorp Industries Limited.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.