Sembcorp Industries Shares: Strong H1 2023 Earnings Along With Higher Dividend

August 7, 2023

Clean energy dividend stocks

For Singapore investors, at first glance the local stock market doesn’t possess many companies that we would consider “growth” stocks.

However, if we look closer there are some interesting opportunities in Singapore as exciting thematic trends take shape this decade.

One of those trends is renewable energy and one company that has been able to position its growth story around that is SGX-listed Sembcorp Industries Ltd (SGX: U96).

The company is also a component stock of Singapore’s Straits Times Index (STI) and last Friday (4 August) Sembcorp Industries reported its H1 2023 earnings.

Here are some key takeaways for those of us interested in Sembcorp’s clean energy growth story.

Sembcorp’s net profit easily beats expectations

As Sembcorp Industries came into the earnings season, the expectation was that its conventional energy (CE) business would post slower net profit on stabilising electricity prices.

However, as it turns out, its CE business posted net profit of S$435 million for the period, up 47% year-on-year and strongly ahead of analyst expectations.

Its fast-growing renewable energy segment did even better – posting net profit of S$117 million for H1 2023, up 54% year-on-year as a flurry of clean energy acquisitions in India and China started to bear fruit for Sembcorp.

The firm’s integrated urban solutions business saw net profit of S$48 million for the period, down 23% year-on-year from H1 2022. This was mainly due to lower contributions from its waste business in Singapore as well as lower land sales in Vietnam.

Overall, net profit for Sembcorp was S$608 million in H1 2023, up 56% year-on-year, mainly due to the outperformance of its CE business. The results easily surpassed consensus analyst expectations.

Sembcorp took a S$78 million loss on the disposal of its coal asset in India (SEIL) due to accumulated currency translation loss during the period.

That meant that its core net profit was S$530 million, still good for an 8% year-on-year increase from H1 2022. Free cash flow came in at S$791 million in H1 2023, up from S$593 million in the same period last year.

Dividend rises but higher interest costs for H1 2023

Sembcorp Industries management has continued to exhibit willingness to share profits with shareholders in the form of dividends.

For H1 2023, Sembcorp announced a dividend per share (DPS) of 5 Singapore cents, up 25% from the 4 Singapore cents announced for H1 2022.

Remember that for 2021, Sembcorp’s ordinary DPS rose 25% and in 2022 the ordinary DPS was hiked another 60%.

Even with the 5 Singapore-cent DPS for the most recent half-year period, Sembcorp Industries’ dividend payout ratio is just 25%.

One thing to watch for investors, though, is the firm’s corporate costs. These were up 145% year-on-year to S$135 million.

The increase mainly came from higher finance costs for acquisitions although its corporate costs were relatively flat on a half-on-half basis.

As you can see below, 71% of its debt is on fixed rates while the remaining 29% is floating. Its weighted average cost of debt is up 60 basis points over the past six months to 4.7%.

Sembcorp H1 2023 debt costs

Source: Sembcorp Industries H1 2023 earnings presentation

Sembcorp looks to the long term for growth

It was another solid earnings report for the renewable energy-focused firm as it looks to make concrete progress on its “brown to green” transformation plan.

Following the earnings, Sembcorp Industries got a wide range of analyst upgrades and higher target prices (TPs), which lead the stock to soar over 6% on Monday.

The company’s share of net profit that’s generated from sustainable solutions stood at 27% in H1 2023, meaning it still has a way to go to meet its 2025 goal for 70% of net profit to come from sustainable solutions.

Sembcorp Industries management will share more of its aspirations for its renewable energy business at an Investor Day scheduled for 6 November.

So far this year, Sembcorp Industries stock has increased by 74% and its shares are giving investors a 12-month forward dividend yield of 1.4%.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

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.

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