Is Sembcorp Industries worth ‘buying’ now?

Shares of the energy conglomerate – newly demerged from Sembcorp Marine – are up 45% since trading excluding entitlements.

  • Sembcorp Industries's shares rose nearly 5% after launch of charity fund
  • The group's share price is up 45% since demerging from Sembcorp Marine
  • Demerger takes financial pressure off of Sembcorp Industries, analysts say
  • They also see 27.4% price upside for the stock in the next 12 months

Shares of energy group Sembcorp Industries (SGX: U96) are up as much as 4.5% on Monday 21 September 2020, following the launch of a new community development fund.

Called Sembcorp Energy for Good Fund, Sembcorp will contribute S$1.5 million to kickstart the initiative.

This year, over S$1 million from the fund will be used to provide relief to social sector and migrant workers. It will also provide grants totalling S$350,000 to 35 eligible charities, in addition to other financing schemes.

Why did Sembcorp Industries’ share price jump 45%?

Last week, Sembcorp Industries’ share price also rallied over 14%, after a new multi-year energy contract with US search engine giant Google was announced.

The deal will focus on the provision of locally sourced renewable power to support Google Singapore’s operations, as part of the tech company’s goal to run entirely on carbon-free electricity by 2030.

Sembcorp Industries’ share price also saw much movement two weeks earlier, following its demerger from Sembcorp Marine on 09 September 2020.

Prior to the demerger, shares were trading at S$1.91 a share. Share price readjusted to a theoretical price of S$0.962, just ahead of trading excluding entitlements.

However, shares quickly climbed over 25% the day after trading ex-entitlements, rising to a peak of S$1.225 on the IG platform on 10 September 2020.

Comparatively, Sembcorp Marine’s share price has declined by over 20% since the demerger.

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Sembcorp Industries stock outlook: Where next?

The Sembcorp Industries stock has a majority rating of ‘buy’ from nine out of 10 analysts polled by Bloomberg, as of 21 September 2020.

The analysts have also given the shares an average 12-month target price of S$1.72, which represents an estimated return potential of 27.4% from the last traded price of S$1.35.

UOB analyst Adrian Loh recently maintained a ‘buy’ call on the stock alongside a higher share price target of S$1.66 (up 33% from S$1.25 previously).

He noted that since the demerger from Sembcorp Marine, Sembcorp Industries’ share price has risen over 35% (as of 17 September 2020).

He attributed the increase to ‘greater market confidence’ in Sembcorp Industries’ business outlook, now that the company will no longer ‘have the millstone of having to provide financial support for Sembcorp Marine going forward’.

Loh also cited the group’s expanding renewable energy presence in China as another factor for his optimistic price case.

On 11 September 2020, the company announced that it signed an MOU with Nasdaq-listed GDS Holdings (whose clients include Alibaba, Amazon Web Services, Huawei, and ByteDance) to provide renewable energy solutions for GDS’ China data centres.

‘We nevertheless continue to see upside over the next 6-12 months given the company trades at a discount to its regional utilities peers both on a P/B and PE basis,’ he wrote.

How to trade Sembcorp Industries with IG

Are you feeling bullish or bearish on the Sembcorp Industries stock?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

  1. Create a live or demo IG Trading Account, or log in to your existing account
  2. Enter <Sembcorp Industries Ltd> in the search bar and select the instrument
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

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