Sembcorp Industries, Southeast Asia’s biggest utilities company, plans to acquire and develop new plants as Asia’s population increasingly migrates to cities, driving demand for resources.
The Singapore-based company is considering the acquisition of distressed assets in India and has dispatched a team to seek investments in Myanmar, Chief Executive Officer Tang Kin Fei said in a Nov. 27 interview at its headquarters. Sembcorp also is seeking opportunities in Indonesia, he said.
“We’re still very bullish,” said Tang, 61. “Over a longer period of time, we still see increasing demand for development in the Asian region. With this growth and population moving from rural areas to new urbanization there is demand for power and water.”
The projects will help Sembcorp take advantage of faster growth in emerging markets as it faces more competition in Singapore, where it gets 68% of its profit from utilities. It aims to boost its energy output by 72% in the next three to four years, and water production by 37% in four to six years, Tang said.
The company has moved into Oman through a venture and expanded into renewable energy with the acquisition of a stake in a wind farm in China.
Sembcorp is developing a coal-fired power plant in India under a partnership, and may expand its utilities business in the country by adding more capacity to the power plant that is under construction, or acquire distressed assets, Tang said, declining to give further details.
MYANMAR TOWNSHIPS
In Myanmar, Tang said he’s keen on developing so-called townships, where Sembcorp could build industrial parks and apartments, before branching out to the supply of power and water. “Although there’s a lot of demand there, there are not a lot of elements in place,” he said.
In Singapore, Sembcorp is building its second combined- cycle gas turbine cogeneration plant to increase its power capacity to 1,615 megawatts from 815 megawatts. The facility, which will also produce 400 tons per hour of steam, will start initial operations at the end of 2013, the company said.
Sembcorp also started operations on its biggest industrial wastewater treatment plant in Singapore to produce as much as 9,600 cubic meters of recycled water a day, it said.
“For utilities, you have to look at the long-term horizon,” said Yeak Chee Keong, an analyst at Maybank Kim Eng Research Pte in Singapore, who rates the stock a buy. “Contribution to earnings can be 20 to 30 years. There will be demand in the emerging markets and this could be a good time to invest.”
UTILITIES EARNINGS
Net income from the utilities business rose by 36% to $293.5 million in the first nine months of this year, accounting for 53% of the company’s profit, the company said Nov. 9. The gains helped pare a decline in the group’s profit to 2% for the period, after lower contributions from its unit, which operates the world’s second- biggest oil-rig builder.
The company also expects margins from its utilities business in Singapore to face pressure next year with new power suppliers in the market, Tang said, adding that he still predicts “decent spreads” as his competitors have a higher debt burden with newer plants.
Singapore’s power supply is expected to grow as much as 30% next year as new projects start operations, which may narrow margins for companies such as Sembcorp, according to DBS Vickers Securities in Singapore. Tuas Power, Keppel Corp. and GMR Infrastructure are expected to start operations next year, the brokerage said earlier this month.
Sembcorp also supports the liberalization of power supply to homes in Singapore, Tang said, as it’s in a “good position” with a ready customer base through its waste-collection operation in the city state.
“Our focus for utilities business is still predominantly in the areas we are in,” Tang said. “As long as there’s global growth and demand, I have growth opportunities for us. We are good hunters.”
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