Business

Brokers' take

Compiled by Lee Meixian

SEMBCORP INDUSTRIES | BUY

FAIR VALUE: $3.59

MARCH 22 CLOSE: $3.09

OCBC Investment Research, March 22

With further liberalisation of Singapore's retail electricity market, there have been questions on the impact on utilities players such as Sembcorp Industries.

First, we note that Sembcorp's Singapore energy business is broken down into three business lines: gas and power, merchant and retail, and renewables and environment.

Under gas and power, Sembcorp imports natural gas from Indonesia, which is supplied to major power generation and petrochemical companies.

In addition, the group has two gas-fired, co-generation plants on Jurong Island that provide power to the grid and steam to customers.

For merchant and retail, Sembcorp sells electricity to contestable customers, and with the liberalisation of the market, this pool will increase as more of the non-contestable segment becomes contestable, although at the same time the industry will become more competitive with the entrance of more retailers.

Under renewables and environment, Sembcorp provides water and wastewater treatment, has an energy-from-waste facility in Singapore and is looking to enhance its solar power capabilities.

Retail electricity sales does not constitute a large part of the Singapore energy business.

Sembcorp Power has reported net profit of $3.4 million to $4.4 million per year between 2014 to 2016, which is marginal compared to the group's total net profit.


OCBC BANK | BUY

TARGET PRICE: $14.95

MARCH 22 CLOSE: $13.26

UOB Kay Hian, March 22

We are encouraged to see OCBC embarking on many IT initiatives to improve operating efficiency.

It has set up an in-house unit with an initial investment of $10 million to develop artificial intelligence capabilities for wealth advisory and loan financing.

OCBC's retail customers are now able to perform day-to-day banking and make cashless payments using their voice.

OCBC has also built two software programmes utilising robotic process automation technologies for deployment in consumer secured lending and finance. OCBC's new regional data centre, purpose-built to prevent security breaches from cyber-attacks, was fully operational since Q3 2017.

The impending initial public offering or trade sale of its 30 per cent stake in Great Eastern Life Assurance (Malaysia) in Q4 2018 to comply with limits on foreign ownership is another catalyst.

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BUSINESS & FINANCE