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CFDs are complex instruments. 72% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
CFDs are complex instruments. 72% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Sembcorp Industries’ shares in steady uptrend with financial metrics set to improve

Buoyed by the demerger with Sembcorp Marine, the stock price of Sembcorp Industries has risen nearly 60% in the last two months

Sembcorp Industries’ shares in steady uptrend with financial metrics set to improve Source: Bloomberg
  • Sembcorp Industries looks more attractive now, without its marine unit weighing it down
  • There may also be a “scarcity premium” for its stock, analysts said
  • However, its utilities segment remains weak, and the assets are getting older

Sembcorp Industries share price: How has it performed?

Sembcorp Industries’ (SCI) shares have been steadily climbing since their first day of ex-entitlements trade on 09 September 2020, ahead of the group’s split with its marine and offshore engineering unit, Sembcorp Marine.

Since then, SCI’s stock price has jumped nearly 60%. It rose 1.6% on the day to finish Tuesday (01 December) at S$1.86.

The energy, water and urban development group’s recent uptrend also comes as Singapore’s stock benchmark, the Straits Times Index (STI), posted a robust 15.8% price gain and 16.2% total return for November 2020 - marking the index’s strongest month of gains since May 2009.

SCI has been one of the 100 most traded stocks in Singapore this year, having posted a year-to-date total return of 62%.

Where next for Sembcorp Industries?

UOB believes the Singapore-based industrial conglomerate is ‘well positioned’ for recovery in 2021 thanks to an impending revival in energy demand on a higher certainty of global economic recovery, following news of successful Covid-19 vaccine trials.

UOB analyst Adrian Loh maintained his “buy” call on SCI and increased the target price to S$2.02, from S$1.66 previously.

The higher target price was based on an upgraded target price-to-book multiple of 0.9 times. Loh said this was reasonable, as it ‘reflects a better comparability between SCI and its regional utilities peers without the offshore marine overhang’ following the demerger.

OCBC kept its ‘hold’ rating on SCI early this month, with a fair value of S$1.63. The research team wrote that while the energy segment provides relative stability, it had taken a hit from the Covid-19 pandemic.

OCBC also pointed to a possible ‘scarcity premium’ for the stock, given that the dearth of earnings growth in the Singapore industrials sector has offered few choices for investors looking to allocate funds in the sector.

The research team believes that SCI’s key financial metrics such as return on equity will likely improve following its upcoming turnaround, having parted ways with Sembcorp Marine.

What’s weighing Sembcorp Industries down?

That being said, the OCBC analysts ‘would be even more encouraged’ if a fundamental pick-up in the utilities space were to drive SCI’s improvement in the future.

Its utilities businesses in certain markets such as India and the UK had already been soft even before the onset of the coronavirus outbreak, affected by individual industry-specific factors. A resurgent Covid-19 wave also poses a key risk, OCBC said.

In Singapore, SCI saw a decrease in energy demand due to the ‘circuit breaker’, lower gas sales, and loss of profit from its divested Jurong Aromatics Corporation (JAC) assets.

Furthermore, the group’s utility assets are getting older, which means replacement capital expenditure could be required in the future, according to OCBC.

Are you bullish or bearish on Sembcorp industries?

Whatever your view, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) SembCorp Industries using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Sembcorp Industries’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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