In my last article, I wrote that I have exited Sembcorp (U96) at $1.85 in December 2020. Indeed, the stock never really hit above $1.85 since my exit. But on 23 Feb, both Sembcorp (U96) and Sembcorp Marine (S51) share prices unexpectedly stirred back to life to increase marginally upon the release of full-year financial results for FY2020. What on earth has happened?
Given that Sembcorp (U96) suffered almost $1 billion of losses, a member of SG Wealth Builder wrote in to enquire why Sembcorp (U96) did not suffer a catastrophic meltdown but rose slightly instead. I will share my view on Sembcorp Marine briefly and then provide an in-depth analysis on Sembcorp (U96).
In my opinion, it is within expectation that Sembcorp Marine would incur heavy losses for FY2020 as COVID-19 led to various project stoppages and delays. Certainly, it is not light at end of tunnel yet. But the $2.1 billion rights issue had provided a crucial lifeline to Sembcorp Marine. In addition, Sembcorp Marine is also pivoting its business to green energy as the Group is actively tendering for more than 10 projects in Renewable Energy and Gas Solutions. These are certainly encouraging news for Sembcorp Marine investors.
Nonetheless, it is important to call a spade a spade. Even though Sembcorp Marine has diversified into renewable energy, its core businesses are still in the offshore marine and oil rig building segments. Post-COVID, oil prices may recover but the demand for oil rigs will remain soft for the foreseeable future with the stiff competition from US shale oil players. Against this backdrop, the prospect for Sembcorp Marine is dim. While the share price has stabilized in recent months, I do not think there is much upside potentials for this stock.
On the other hand, Sembcorp (U96) is on a roll. The demerger from Sembcorp Marine in 2020 had allowed Sembcorp (U96) to focus in the energy and urban development businesses. Indeed, the full-year report revealed that the Group posted profit of $301 million, excluding exceptional items and the discontinued Marine business. On the basis of the latest financial performance, will Sembcorp (U96) share price hit $4 in 2021?
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested in Sembcorp (U96) share currently. Whether Sembcorp (U96) share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
Sembcorp (U96) is a deep value play
With Price/Book value of 0.886, Sembcorp (U96) is being traded at discount to its book value. Given the demerger from Sembcorp Marine, I do not expect further losses from the discontinued operations. However, the continuing operations should still suffer losses from exceptional items. Even so, I forecast full-year net profit for FY2021 to be [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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