SembCorp Industries (SCI) announced an 8.5% YoY rise (up 32.6% QoQ) in 1Q FY09 net profit on a 15.1% YoY drop in revenue (down 20.3% QoQ) after the market closed on 12 May 2009.
The quarterly results were slightly below our expectations, but in line with the Bloomberg-consensus estimates. The key surprise was the Utilities division, which recorded weaker-than-expected revenue due to lower high-sulphur fueloil (HSFO) prices, a weaker UK pound, less offsite power sales, and the expiration of favourable pricing contracts in the UK.

We have revised down our FY09, FY10 and FY11 net-earnings forecasts by 7.7%, 8.1%, and 9.1%, respectively, due to the weaker-than-expected utility profit. Our FY09-11 earnings forecasts are still slightly higher than respective Bloomberg-consensus forecasts.

We maintain our six-month target price of S$2.08 based on a sum-of-parts valuation.

SCI’s share price has risen by 20.7% over the past nine trading days (compared with a 20.4% rise for the FSSTI and a 16.3% increase in the price of Brent crude oil). We fully expect the company’s share price to trade in line with the crude-oil price and the FSSTI. However, we recommend that investors look elsewhere to participate in the rally, as we see this company as being at risk of a significant year-on-year earnings decline for FY11 due to a lack of new rig-building orders through SembMarine (SMM SP, S$2.78, 4).