Sembcorp Industries: Investor Day: Five-year Energy Transition Roadmap
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Energy Transition Roadmap through 2028
Outpaced2025 targets. SCI has achieved most of its 2025 targets ahead of time (highlighted in green in following table). The key 10GW gross installed renewable capacity target would be met in 2024, with the completion of the bulk of its projects currently under development. Emission intensity nearly halved to 0.3 tCO2e/MWH (vs. the target of 0.4) while financial metrics (ROE, Debt/EBITDA, EBITDA/Interest) are all tracking above targets as well.
What are falling behind targets? Urban development land sales (which have stalled since COVID), and % share of profit from sustainable solutions due to the strong recovery of Singapore power market that saw earnings rise 6x from 2020 level as well as the muted growth in urban development. For arguments sake, if conventional energy profit held steady at 2020’s level, % earnings from renewable & urban development would have crossed 75% of total Group earnings.
Stepping up green transition goals by 2028. SCI aims to triple its gross renewable installed capacity from 8.7GW to 25GW by 2028. Emission intensity is to halve to 0.15 tCO2e/MWh. ROE is expected to moderate from current 19% to 12%, factoring in normalized gas assets earnings (15% ROE) with additional capex to decarbonize while renewables ROE remain stable at 10%. Strategy for urban development will be released mid-2024 pending the onboard of the new CEO for the segment end of this year. The key market focuses remain on China, India, Singapore, and other SEA countries like Vietnam and Indonesia.
SCI expects to spend S$14bn capex in 2024-2028, of which 75% will be deployed for renewable, 10% for hydrogen-related assets, 10% for decarbonization, and 5% for urban solutions. The capex would be funded by operating cash flow (50%), project financing (30%), and corporate debt / capital recycling / partnerships (20%). Management emphasizes that there is no equity fund raising required to achieve the new goals, unless a very compelling and earnings accretive acquisition target requires equity issuance.
Predictable and stable earnings growth ahead
Strong financial performance in 2020-2022. Group net profit grew over 5x, led by conventional energy, while renewables also saw earnings tripled. Urban solution was stable. This has resulted in of operational free cash flow more than doubling – from S$0.7bn in 2020 to average S$1.5bn in 2021/2022.
Prudent interest rate management. SCI has successfully raised >S$4bn of sustainable financing at attractive terms. It has also increased fixed rate debt proportion to 70%, reducing exposure to a high interest rate environment. It has over S$2bn of undrawn committed facilities and will continue to tap green and sustainability-linked financing. New projects will factor in higher-for-longer interest rates.
Power earnings to be more predictable with a <5% spot exposure. SCI has also taken pre-emptive measures of locking in longer term PPAs for Singapore power since 3Q23, leaving only a 5% exposure to spot. Coupled with gas hedges, Singapore power earnings should be relatively steady, with only a slight h-o-h decline in 2H23, becoming more predictable moving forward.
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