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Sembcorp Industries: Resilient 1H2025 Performance and Outlook · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome to the Deep Dive, where we cut through the noise of financial reports.
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  We're here to extract those crucial insights you need to really understand a
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  company's story. That's the goal.
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  Today, we're plunging into the recent half-year financial results of Semcorp
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  Industries. This is for the period ending June 30, 2025.
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  That's right. And we've got the full stack here. Their financials,
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  the operational data, press releases, the results, slides, the lot.
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  But our mission. Well, it's pretty clear.
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  Understand SEMCorp's financial performance. Yeah. Unpack the why behind those
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  numbers, you know, the good and the maybe not so good, and get a clear picture
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  of their outlook, especially as they push on with that big brown to green transformation.
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  Okay, let's unpack this then. So at first glance, SEMCorp reported a group net
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  profit of, what was it, S?
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  $536 million for 1H 2025. which is actually a slight dip, just 1% from $543
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  million in the same period last year.
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  Right. But like we always say, that headline figure, it rarely tells the full story, does it?
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  Especially in a case like this. Exactly. So let's dig in. Well,
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  what's really fascinating when you do dig in is how resilient the underlying picture seems to be.
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  Their net profit before exceptional items and that DPN foreign exchange gain or loss.
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  Right. The underlying profit. It was S-491 million dollars, which is,
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  look, basically comparable to the S-489 million dollars in 1H 2024.
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  OK, so almost flat, underlying. Yeah. That stability, despite the headline number
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  being slightly down, that's a really critical takeaway, I think, right from the start.
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  So, OK, if that core profit held steady, why the slight tick down in the overall reported number?
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  And maybe just quickly for listeners, what exactly are those exceptional items
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  and the DPNFX gain loss for Semcorp? Absolutely. Good question.
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  So the difference really lies in those specific terms. Exceptional items or
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  EI, they're typically, you know, one-off things.
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  Gains or losses that aren't part of the regular day-to-day business.
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  Like selling something off. Exactly. Like asset sales. Yeah.
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  And the deferred payment note affects gain loss. That relates to currency fluctuations
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  impacting the value of a specific financial note some corp holds,
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  gets considered non-operational.
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  Got it. Currency effects on a specific note. Precisely.
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  So in the first half of 2025, they had $140 million in exceptional items.
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  Mostly, that was a big gain from selling their waste management subsidiaries in Singapore.
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  Ah, okay. And that gain helped cushion the blow from an S-95 million dollar FX loss on that DPN.
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  Right. Now, compare that to the first half of 2024.
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  Back then, they only had $8 million in EI and importantly, a $46 million FX gain on the DPN.
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  Ah, so completely flipped from a gain to a loss on that note. Exactly.
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  So that massive swing, S141 million dollar difference just in the DPNFX component
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  alone, that significantly pulled down the reported net profit this time around.
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  Okay, that makes perfect sense.
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  So underlying business stable but currency swings and that big asset sale really
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  moved the headline number.
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  You got it. It just highlights how these non-operational, often volatile factors
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  can sometimes mask what the core business is actually doing. Right.
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  So beyond profit, the company's turnover, its revenue actually declined by 8% in the first half.
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  What was driving that drop? Yeah,
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  turnover fell from about S3.2 billion dollars to 2.9 billion dollars.
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  It was largely two things. Firstly, lower pool prices.
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  That hit their gas and related services segment in Singapore pretty hard.
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  So selling energy for less. Basically, yeah. The market price was down.
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  And secondly, and this is significant, the absence of any contribution from
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  Semcorp Environment, Sem and Vero.
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  They sold that business, remember? Ah, yes, the divestment. So its revenue just
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  isn't there anymore. Exactly.
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  It's no longer on the books. But I guess there must have been some positive
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  things happening too, right?
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  To stop turnover falling even further, what were the bright spots?
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  Precisely. There were definitely some offsets. They saw higher gas sales in
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  Singapore, which helped.
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  And crucially, Semcorp's big strategic focus on growth really started to show.
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  The renewables push. Yeah.
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  New capacity additions, acquisitions in the renewable segment,
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  particularly in places like Vietnam, India, Oman, that partially mitigated the
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  overall turnover decline. It's a classic example of that portfolio diversification strategy working.
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  Okay, let's really get into the weeds now, segment by segment.
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  Let's understand the why. First up, gas and related services.
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  Net profit before EI was S330 million dollars.
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  Just a small dip from S339 million dollars last year.
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  What's the story here? Well, this segment, which is still, you know,
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  a really foundational part of their business, actually showed impressive resilience,
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  I'd say, given the market conditions.
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  How so? Its performance was definitely impacted by those lower power spreads
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  in Singapore we mentioned.
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  The USF, the Uniform Singapore Energy Price, that benchmark wholesale electricity
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  price, it dropped a steep 39% year-on-year, down to $122 per megawatt hour.
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  Wow, 39%. That's a huge headwind. It really is. And they also faced lower pool
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  games, reduced gas margins.
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  But, and this is the key, these negatives were largely offset. By what?
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  By higher gas diversion, sort of optimizing where their gas went and significantly
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  contributions from the newly acquired Sunoco Energy, they upped their stake
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  in Sunoco to 50% effective June 2025.
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  That really boosted this segment. Ah, the acquisition effect kicking in.
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  Exactly. And on top of that, they locked in some earning stability.
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  New long-term power purchase agreements for over 120 megawatts.
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  And they secured over $650 million in new contracts for gas power utilities.
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  So, yeah, market prices were tough. But strategic moves in contract wins provided a strong defense.
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  OK, now for the really interesting part, I think, where SEMCorp's strategic
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  pivot comes into sharp focus. Renewables.
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  This segment saw a big jump, right? A 27% increase in net profit for EI,
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  up to S-132 million dollars.
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  Significant growth. And even more striking, their gross renewables capacity.
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  It leaped from 10 gigawatts in 1H 2024 to 13.8 gigawatts now.
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  That's a phenomenal surge. It truly is massive expansion. And this impressive
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  growth in both capacity and profit, it was primarily driven by a couple of things.
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  Higher wind resource availability in India. Meaning it was just windier. Essentially, yeah.
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  Better wind conditions meant more power generation. Simple as that.
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  Plus, new commission capacities from recent acquisitions kicked in across Singapore,
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  India, China, the Middle East.
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  They even got some compensation for a project delay over in the UK,
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  which helped the numbers. Okay, strong performance overall.
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  But you mentioned challenges. Yes,
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  it's crucial to note that this strong performance was partially offset.
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  They faced higher curtailment and lower tariffs in some parts of China. Right. China.
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  That's a fascinating counterpoint. It's such a huge market for renewables.
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  But what exactly is causing these headwinds like curtailment for Semcorp there,
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  despite all the growth potential?
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  That's an excellent question. It really highlights the complexities you get
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  with rapid energy transition, doesn't it?
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  So curtailment basically means their renewable plans had to cut back production.
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  Why? Because the local grid couldn't actually take all the power they were capable
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  of producing at certain times. In China, especially in regions like the Northwest
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  and Guangxi, the build out of renewable supply is kind of outpacing demand growth
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  and the grid's capacity to handle it.
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  An oversupply issue locally? Sort of, yeah.
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  Leading to this curtailment. And then you have lower tariffs,
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  the price they get paid for the power.
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  That's partly down to accelerated market trading rules and also because coal
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  prices have fallen, which tends to set a sort of floor price.
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  I see. So even with growth, there are pressures. Exactly.
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  So while Semcorp's China portfolio still grew gross capacity up to 3.7 gigawatts
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  and another 3.3 gigs secured or being billed, it's not just a simple up and to the right story.
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  It's a key growth market, yes, but one with its own unique pressures that need
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  a very active management. Okay.
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  Moving on to integrated urban solutions.
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  This segment reported a stable net profit before EI, S-74 million dollars,
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  just up slightly from S-73 million dollars.
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  What's the narrative behind this consistency? Yeah, pretty stable there.
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  It was supported by a pretty solid demand. You saw that in higher land sales
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  in Indonesia and Vietnam.
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  Yeah. That suggests a healthy appetite for industrial and urban development
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  in those markets. Okay. Plus, their water business in China saw better earnings.
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  The main counterbalance, though, was the absence of contribution from Simbin
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  Vero, the business they sold off.
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  That used to be the decent chunk of this segment. Right, the divestment impact again. Yeah.
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  Operationally, things look okay, too. Their leasable area was about 134,000
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  square meters, and occupancy improved quite nicely up to 84% from 76% at the end of last year.
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  Shows they're managing existing assets well. And finally, the emerging decarbonization solutions segment.
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  This one showed a net loss of S-13 million dollars, a bit bigger than the S-10
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  million dollar loss last year.
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  What does this loss tell us about their long-term strategy? Right.
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  So that net loss, while obviously negative financially for this period,
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  is really a strategic investment.
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  It reflects the costs Semcorp is putting in now to capture future opportunities
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  in these really nascent but critical areas.
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  Like green hydrogen. Exactly. Green hydrogen, green ammonia projects,
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  exploring low carbon electricity imports, things like that. These aren't going
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  to be immediate profit centers.
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  They're long-term bets on where the energy transition is heading.
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  So it's expected at this stage, spending money to build for the future. Pretty much, yes.
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  Seeing a net loss here at this early stage, it actually aligns with their stated
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  strategy. They're building capabilities, positioning themselves for the next
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  wave of decarbonization.
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  Okay, let's shift gears slightly to the company's overall financial health, the balance sheet.
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  Total assets declined, didn't they? From S, $18.28 billion down to S,
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  $17.51 billion as of June 30th.
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  What caused that reduction? Yeah, a noticeable drop.
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  It was mainly due to currency effects, actually. The depreciation of several
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  key foreign currencies, the Chinese renminbi, the Indian rupee, the U.S.
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  Dollar against the Singapore dollar. Ah, translation effects. Exactly.
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  When those currencies weaken, the value of assets SEMCORP holds in those countries
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  decreases when you report them back into SING dollars.
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  Also, asset values dipped because they used cash from those DPN collections
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  and the SEM Minvira sale to pay down loans.
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  Paying down debt reduces assets on the other side. And speaking of debt,
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  they did manage to reduce gross debt, you said.
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  How significant was that and what does it signal? It was a decent reduction, yeah.
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  Gross debt down to S.26 billion dollars from $89.67 billion at the end of 2024.
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  And that was a direct result of that proactive financial management we talked
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  about, using the DPN cash and the SEM Enviro proceeds to repay loans.
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  Plus, the stronger SING dollar helped a bit too in translation terms.
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  So, good discipline there. I'd say so. It shows a commitment to managing leverage.
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  And what's also really noteworthy, I think, is that 81% of their debt is fixed rate.
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  That gives them stability against rising interest rates.
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  Definitely valuable right now. And 43% is classified as green and sustainability-linked
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  debt, which, again, highlights how their financing strategy is really tying
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  into that whole brown to green transition plan.
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  Okay, so on the cash flow front then, what did the picture look like for Semcorp in the first half?
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  The cash flow picture was pretty healthy, actually.
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  Net cash from operating activities improved quite a bit.
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  Rose to $672 million from $517 million in 1H 2024. What drove that improvement?
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  Mostly better working capital management. They got better at collecting cash
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  owed to them, particularly in Singapore, Bangladesh, and the UK.
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  Net cash from investing activities also turned positive, $175 million.
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  That was mainly thanks to those big divestment proceeds from selling Sim and
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  Vero. Right, the sale bringing cash in. Exactly.
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  But on the other side, net cash used in financing activities increased to $805 million.
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  That was mainly them paying back loans and, of course, paying out dividends.
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  So overall, generating cash, selling assets, paying down debt,
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  paying dividends seems quite active.
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  Yeah, it indicates a company that's actively generating cash from its operations,
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  strategically reshaping his portfolio through divestments, and efficiently managing
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  its capital structure while also returning value to shareholders.
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  A busy period. Let's turn our gaze forward then. Outlook. Despite all the macroeconomic
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  uncertainties, Semcorp said they had a resilient first half.
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  What are they expecting for the second half of 2025?
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  Any particular headwinds or tailwinds we should be aware of? Right, looking ahead.
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  Connecting this to the bigger picture, Semcorp expects gas and related services
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  to stay resilient in the second half, even if they face slightly lower spreads
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  from contracts being renewed.
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  Okay, continued stability there mostly. Housely. Although they did flag their
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  watchful about potential lower customer demand in the UK.
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  There's a big ethylene cracker facility in Wilton owned by Sabic that's closing
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  down, which could impact their UK operations.
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  Ah, specific customer risk. Yeah. For renewables, earnings are expected to be
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  seasonally lower in the second half. That's pretty typical.
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  And as we discussed, they still foresee those challenges in China,
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  continuing the higher curtailment, lower tariffs compared to last year.
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  But new projects might help offset that. They expect new project contributions
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  to partially offset it, yes.
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  And the integrated urban solutions segment. Expected to remain stable if you
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  exclude the divested salmon feudal business.
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  But again, a potential external risk. They're monitoring the impact of global
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  trade tariffs on land sales.
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  So a complex picture, but it sounds like they have a handle on the moving parts. It seems so.
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  A complex but seemingly well-managed outlook overall.
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  And dividends, always key for investors.
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  What's the news there? Good news for shareholders, I suppose.
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  They announced a notable increase in the interim dividend. 9.0 cents per share
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  for the first half, up from 6.0 cents last year. That's a decent bump. It is.
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  Payable August 26th. And they've also said they expect to maintain a sustainable
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  payout for the full year, in line with their underlying earnings.
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  Confidence in the earnings power then seems that way and that's probably reflected
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  in their recent capital market activity too they just issued a 300 million dollar
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  bond at 3.55 percent in july.
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  Still active in the markets. Okay. Beyond the core numbers and outlook,
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  any other significant developments or maybe policy shifts we should keep an
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  eye on for Sumcorp? Yeah, a couple of things.
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  Operationally, they've got planned maintenance coming up. Five weeks for Singapore's
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  cogent plants, four weeks for the UK biomass plant in the second half,
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  but they say the impact should be limited. Standard maintenance shutdowns? Pretty much.
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  A potentially more significant point to watch is in Vietnam.
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  They're waiting for finalization of revisions to the country's renewable feed-in
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  tariff regime. Ah, policy changes. Exactly.
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  Depending on how those revisions land, it could directly affect the profitability
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  and the growth outlook for their renewable segment in Vietnam.
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  So that's definitely one to monitor closely. Okay.
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  So there you have it. A pretty comprehensive deep dive into Sumcorp Industries 1H 2025 financials.
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  We've seen a company, well, skillfully navigating some pretty complex market
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  dynamics, wouldn't you say? I would, yeah.
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  Strong growth in renewables clearly driving the future, while careful portfolio
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  management and those strategic acquisitions are underpinning the overall resilience
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  even in the traditional energy parts. Indeed.
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  And I think the defensiveness of that diversified portfolio really stands out.
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  A big chunk of their net profit comes from investment-grade markets.
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  You know, those with stronger economic stability, lower perceived risk.
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  Right. That seems to be a key factor in keeping those underlying earnings stable,
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  despite the currency hits and those specific headwinds in certain segments.
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  It really highlights a mature approach to risk management as they go through
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  this big transformation. And for you, our listener, what stands out to you from
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  Semcorp's journey so far?
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  As the company pushes on with this brown to green shift, how do you see things
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  like global economic uncertainty or those regional policy changes in places
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  like China and Vietnam, how will they shape the future?
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  Not just for Semcorp, but for the whole energy and urban solutions landscape.
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  It's certainly a dynamic time for this sector. A lot of challenges,
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  yes, but also challenges.
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  Music.