Executive Summary

Sembcorp Industries’ share price has fallen approximately 25% from its August peak following its 1H2025 results, marking one of the sharpest sentiment reversals among Singapore large-cap stocks this year. The decline was triggered less by a deterioration in core fundamentals and more by a reset of expectations after a strong pre-results rally and headline impacts from foreign-exchange movements.

Since the sell-off, Sembcorp has continued to execute on its long-term strategy, accelerating its renewables expansion, strengthening long-term contracted earnings, and announcing a landmark acquisition in Australia. With valuations now materially lower and profitability metrics still robust, the pullback warrants a reassessment of the company’s medium-term risk-reward profile.

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Sembcorp Today: A Utilities and Sustainable Energy Platform

Sembcorp Industries today is markedly different from the conglomerate it was a decade ago. Following the divestment of its marine business, the group has reshaped itself into a focused utilities and sustainable energy platform, anchored by five core operating segments.

Gas & Related Services remains the financial backbone of the group, contributing around 60% of net profit in the first half of FY2025. This segment includes power generation assets in Singapore, embedded generation in the UK, and long-term utilities contracts with industrial customers. More than 80% of Singapore’s generation portfolio is backed by long-term power purchase agreements, providing earnings visibility and cash-flow stability.

Renewables has emerged as the primary growth engine, contributing roughly 25–30% of net profit. The portfolio spans solar, wind, and battery storage assets across India, China, Southeast Asia, and the UK, with nearly 19GW of installed capacity under predominantly 20–25-year PPAs. Expansion momentum has been strongest in India, where Sembcorp continues to scale into higher-value, firm renewable solutions.

Integrated Urban Solutions (IUS) contributes approximately 10–12% of net profit and plays a strategic role by integrating energy infrastructure with industrial development in emerging manufacturing hubs such as Vietnam and Indonesia.

Decarbonisation Solutions remains a smaller contributor today but is strategically important. This segment includes hydrogen-ready infrastructure, cross-border renewable imports, and energy efficiency initiatives. The upcoming 600MW hydrogen-ready power plant in Singapore is expected to begin contributing meaningfully from FY2026.

Other Businesses & Corporate captures ancillary activities and corporate-level earnings that support group operations.

Taken together, Sembcorp combines utility-style earnings resilience with long-term renewable growth optionality.

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What Triggered the Share Price Decline

The sharp sell-off followed Sembcorp’s 1H2025 results announcement in August. The share price fell nearly 14% in a single session and continued to slide to about 25% below its August peak near S$7.90.

On the surface, results were stable. Net profit came in at S$491 million, broadly flat year-on-year, while revenue declined by around 8% as the group continued shifting toward higher-margin, lower-revenue renewable assets. However, expectations heading into the results were elevated. In the five months prior, the share price had rallied approximately 35%, driven by optimism around renewables growth, project wins in India, and anticipation of a potential India monetisation event.

The key disappointment was foreign-exchange impact. Sembcorp recorded about S$23 million in non-cash forex losses following the strengthening of the Singapore dollar, alongside a further S$95 million forex impact on its deferred payment note for India assets. Combined, these effects erased what would otherwise have been an estimated 5% increase in underlying profit, turning growth into a slight year-on-year decline.

Once forex effects came into focus, investors also scrutinised operating segments more closely. Margins in Gas & Related Services narrowed modestly, China renewables faced curtailment and tariff adjustments, and near-term profits softened despite new contract wins. Individually, these were manageable variances, but collectively they reinforced the perception that earnings momentum had slowed.

The sell-off, therefore, reflected a sharp reset in expectations rather than a collapse in underlying business fundamentals.

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Developments Since the Sell-Off: Operational Momentum Continues

Since August, the company’s operational trajectory has continued to strengthen, even as sentiment lagged.

Renewables Expansion Across Markets

India remains central to Sembcorp’s growth strategy. The S$246 million acquisition of ReNew Sun Bright gave the group full ownership of a 300MW operational solar asset under a 25-year PPA. In addition, Sembcorp secured a 150MW firm and dispatchable renewable energy project from SJVN, requiring approximately 750MW of new solar and battery capacity. This pushes the India portfolio beyond 7.6GW and deepens exposure to higher-value, round-the-clock renewable solutions.

In Singapore, Sembcorp continued to expand its solar and storage footprint, winning the 86MW floating solar project at Pandan Reservoir, commissioning a 118MWp ground-mounted solar farm on Jurong Island, and increasing battery storage capacity from 285MWh to 326MWh through system enhancements.

Entry Into Australia via Alinta Energy

The most significant post-August development is Sembcorp’s proposed A$6.5 billion acquisition of Alinta Energy. Australia is one of the region’s most advanced energy markets, and Alinta brings a portfolio with 93% dispatchable availability and a 10.4GW development pipeline across solar, wind, and battery assets.

By retaining Alinta’s management team, Sembcorp reduces integration risk while gaining immediate scale in a developed market. Upon completion in the first half of 2026, the acquisition will give Sembcorp a more balanced geographic footprint across Singapore, India, and Australia.

Rising Power Demand and Contracted Earnings in Singapore

Structural power demand in Singapore continues to rise, driven by data centres, semiconductor manufacturing, and AI-related infrastructure. Sembcorp’s long-term renewable energy agreement with Micron exemplifies this trend, and additional demand is expected as capacity expands.

The company is also well positioned for Singapore’s next data centre capacity allocation, which will require approximately 300MW of new energy supply. Its integrated portfolio, including the upcoming hydrogen-ready plant, strengthens its competitive position.

Meanwhile, increased exposure to Senoko Energy enhances earnings visibility. Senoko is expected to generate over S$200 million in earnings on a 100% basis in 2026, with most contracts secured under medium- to long-term PPAs.

Capital Recycling Optionality

Capital recycling remains a potential catalyst. Estimates suggest that monetising Sembcorp’s India renewables portfolio could unlock S$3.5–5.5 billion in proceeds, depending on structure. While timing remains uncertain, management has indicated that the second half of 2026 is a reasonable window.

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Valuation After the Reset

At current levels, Sembcorp trades at approximately 10 times forward earnings, compared to 12–14 times for many Asia-Pacific utilities and renewable developers. On an EV/EBITDA basis, the discount exceeds 40% relative to regional peers.

Profitability remains strong. Return on equity is close to 19%, notably higher than many renewable peers operating in the low- to mid-teens range. This combination of high profitability and discounted valuation suggests that the recent derating may have overshot fundamentals.

From an income perspective, management has guided for annual dividends of at least 23 cents per share over the next several years, translating to a yield of roughly 3.6% at current prices. While not high by REIT standards, the payout is supported by contracted earnings and improving free cash flow.

The company has also conducted approximately S$12.5 million in share buybacks since late August at an average price of around S$6.11, signalling internal confidence in valuation.

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Key Risks to Monitor

Despite improved valuation appeal, several risks remain.

Foreign-exchange volatility continues to affect reported earnings due to exposure to emerging markets, particularly India. Regulatory and pricing risks persist in markets such as China and Vietnam, where tariff adjustments and curtailment can compress margins. The capital intensity of expanding toward a 25GW renewables target by 2028 requires disciplined execution, especially alongside large acquisitions such as Alinta. Finally, the transition from gas-heavy earnings to renewable-led growth may introduce margin variability during the transition phase.

These risks explain why Sembcorp continues to trade at a discount and underscore the importance of a medium- to long-term investment horizon.

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Conclusion

The 25% pullback in Sembcorp’s share price has meaningfully altered the investment conversation. While the sell-off was driven by a reset in expectations and forex-related headline effects, the company’s operational momentum has continued to strengthen across renewables, contracted utilities, and geographic diversification.

At current valuations, Sembcorp is trading at levels that better reflect both its risks and its long-term growth potential. For investors, the opportunity now lies not in assuming a flawless recovery, but in assessing whether the improved risk-reward profile aligns with a multi-year transition toward a more diversified and sustainable energy platform.

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