The Business Times has reported that Sembcorp Industries (SCI) is in talks with several financial institutions for funding for its bid for the Salalah Independent water and power project in Oman, for which it was recently named as a preferred bidder by the Omani authorities. However, the report also indicated that SCI is relooking at its earlier costings when it had previously bid for the project, given that the economic environment has changed significantly over the past few months. The Salalah project is part of SCI’s push into mega-infrastructure project bids in the Middle East, on the heels of its similar Fujairah project in UAE. However, SCI’s bid may be derailed if financing falls short in the current tight credit market situation. As such, we have not yet factored in a potential Salalah contract win into our forecasts, but will be keeping tabs on the bidding progress.

SCI’s Singapore utilities business are expected to remain firm, but significant earnings erosion should arise from the devaluation of the pound sterling versus the Singapore dollar, which has declined by 15% over the past 3 months, affecting its earnings translation from its Wilton project in the UK. While the marine business’ earnings should remain steady from contracts on hand, the longer term outlook remains weak as the cycle peters out. We maintain our Hold recommendation on SCI, ahead of its FY08 results release on 26th February, with target price at $2.79.