On Monday, Citi reiterated its Buy rating on Sembcorp Industries (SCI:SP) with a price target of SGD6.68. The firm's analyst cited the early commencement of commercial operations at the Manah II Solar Independent (LON:IOG) Power Project in Oman as a positive development. The project, which is the largest in Sembcorp's renewables portfolio, will now contribute to the company's revenue and profitability for the entire fiscal year 2025 due to its early start.
The 588-megawatt solar farm's 20-year, 500-megawatt power purchase agreement is set to begin, adding 5% to Sembcorp's total gross renewables capacity of 10.0 gigawatts as of the first half of 2024. This addition marks a significant milestone for the company, emphasizing its focus on renewable energy as a long-term growth driver.
Renewable energy projects, despite accounting for a smaller portion of Sembcorp's revenue compared to conventional energy projects, offer a more favorable EBITDA margin profile. In fiscal year 2023, renewables had a 73% EBITDA margin, substantially higher than the 20% margin for conventional energy. This superior margin profile underscores the strategic importance of renewables to Sembcorp's future profitability.
The analyst also noted that every 1% improvement in renewable energy revenue growth for fiscal year 2025 is expected to increase the company's profits by 0.3%. This projection highlights the significant impact that renewable energy performance can have on Sembcorp's financial outcomes.
In addition to the early start of the Manah II Solar Project, Sembcorp's consolidated revenues are anticipated to rebound from the impact of prior plant maintenance shutdowns in Singapore. This recovery, combined with the contribution from the solar project, is expected to bolster the company's financial performance in the coming fiscal year.
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