Sembcorp Industries share price to hit $5 after demerger?

For the longest time, I hold back writing about the impact of the demerger to Sembcorp Industries (SCI) share price because you never know if the shareholders would do a “Keppel”. Now that 99% of the shareholders had voted for the demerger, I think it is time opportune to pen down the potential long-term impacts on Sembcorp Industries share price.

Hyflux to sink or swim with Sembcorp Industries?

Sembcorp Industries Ltd

When the $2.1 billion recapitalization of Sembcorp Marine was announced on 8 June 2020, I can imagine long-term investors of Sembcorp Industries being overwhelmed with emotions. I can certainly relate to their agony. Indeed, investing in this counter is no fun. Sembcorp Industries share price used to trade at $5.50 in 2014. Then the oil slump of 2015-16 came along to mess things up for its marine subsidiary, Sembcorp Marine (SCM). Consequently, Sembcorp Industries share price got walloped left, right and centre.

Sembcorp Industries share price

The devastating COVID-19 and the collapse of oil prices have led many to view SCM as a fast sinking ship. Prior to 2020, SCM had dragged down SCI’s financial performances for years because of the ailing oil and gas sector. This resulted in SCM borrowing $2 billion of subordinated loan from SCI in June 2019. The latest development should enable Sembcorp Industries share price to see light at end of tunnel as the debt levels will be significantly reduced and the proposed demerger will lead to increase in strategic focus.

On 18 August 2020, PUB and Sembcorp Industries announced the commencement of construction of the 60 megawatt-peak (MWp) floating solar photovoltaic (PV) system on Tengeh Reservoir. Then on 17 August 2020, Sembcorp Industries announced its first integrated urban development in Myanmar. These strategic projects would likely to lead to increasing Sembcorp Industries share price in the coming months.

The decoupling of the oil and gas subsidiary will only halt the festering wound on Sembcorp Industries share price. In my view, the demerger will not be the most important catalyst for Sembcorp Industries share price. In my opinion, to truly unlock the full value of Sembcorp Industries share price, the management must seriously start to recycle its energy and urban assets through business trusts or REITs.

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 and have never invested in Sembcorp Industries before. Whether Sembcorp Industries 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 Industries share price in new dawn

The demerger is really a good move as it will result in shareholders receiving between 427 and 491 Sembcorp Marine shares for every 100 Sembcorp Industries shares owned, with no cash outlay required. This is surely a massive windfall for shareholders! No wonder Sembcorp Industries share price jumped from $1.40 on 29 May 2020 to $2.10 on 9 June 2020.

Currently, Sembcorp Industries share price is on fire, probably because people are buying the stock so that they can qualify for the distributions and then sell the Sembcorp Marine shares for cash. Note that to be entitled to the distributions, the last date of “cum-distribution” is 8 September 2020.

While it is possible to make quick bucks out of the volatility of Sembcorp Industries share price, investors should [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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Updated: August 18, 2020 — 9:25 pm

7 Comments

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  1. Hi Gerald, anything about your entry price to SCI?

    Besides, it’s really surprising Temasek dropped the plan of partial offer to Keppel even prior to the confirmation of SCM demerging from SCI. Now with the dust settled for the demerge, do you think Temasek would come back on this kind of offer with a view to consolidating the O&M industry, and possibly when? Thanks.

  2. Hi Leo,

    I am still pondering whether to enter this stock. As you are aware, I am vested in AEM and OCBC. Both are making profits. For Sembcorp Industries, the pull factor would be of course the distribution. But the downside risk is the losses from the energy segment. And the loss is what turned me off.

    My entry price would be $1.85 for SCI. This represents around 0.55 of the company’book value. Really a bargain!

    Regarding the walkaway by Temasek on the partial bid for Keppel, it is indeed unexpected. But I guess probably Temasek may want to delay the consolidation for the next few months. After all, with merger, there would surely be staff retrenchment because of duplication of roles and functions.

    Regards,
    Gerald
    https://sgwealthbuilder.com

  3. This time round your entry price is extremely easy to wait as it already reached today. Haha

    0.55PB right now? How would it be after demerge is completed? Thanks.

  4. Hi Leo,

    After much consideration, I decided to give this counter a miss. No point messing around with the shortists. Sembcorp Industries is an STI component and the borrowing rate is so cheap (0.25%)! Last week volume of short sale was 9.5 million, triple the volume of the week before! No point risking my hard earned monies and being ambushed by the shortists.

    As for p/book value, it is really anyone’s guess. For some unknown reasons, Singapore stock prices tend to have very poor valuations, even for those fundamentally strong companies. For Sembcorp Ind, it could take years to recover from the financial harm caused by SMM. So those who buy SCI must be prepared to be long-term investors.

    Regards,
    Gerald
    https://sgwealthbuilder.com

  5. Gerald,

    But if you buy for mid to long term why are you afraid of Shortist?

  6. Hi Thay,

    What if Sembcorp Ind turns out to be another Singtel? The opportunity cost of holding the shares could be high.

    Regards,
    Gerald
    https://sgwealthbuilder.com

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