SINGAPORE (Sept 23): UOB Kay Hian is maintaining its “buy” call on Sembcorp Industries, with a target price of S$3.29.

In a Thursday note, lead Analyst Foo Zhi Wei believes that the market has overly discounted its non-marine business, pricing the company as under distress.

Foo argues that Sembcorp now resembles more of a utilities company as fewer marine contracts keep earnings down.

In future, the analyst expects marine revenue contribution to shrink from over 50% to under 20% in the future, overtaken by contributions from its utilities business.

The 20% discount that Sembcorp is currently trading at is also unwarranted as utility earnings from Singapore have bottomed-out and begun edging up to S$50-S$60/megawatt-hour band, adds Foo.

Singapore is also expected to contribute about 30% of utilities earnings despite significant oversupply and operations from China and India coming online in 2018.

And even though its India operations suffered another outage from Sept 17-21, plant load factor should still hit 80% for 2016.

Nevertheless, worries over rig orders from Perisai, Oro Negro and North Atlantic Drilling remain, with year-to-date contract wins hitting S$320 million compared to S$3-4 billion contracts annually.

Profit forecasts for FY2016 has been cut 1.2%, with lower plant load factor from India of S$511 million from S$517 million, however, net profit projections for FY17 and FY18 remain at S$492 million and S$579 million respectively.

Shares for Sembcorp Industries closed flat at S$2.56.