Morgan Stanley: SembCorp Industries — Asia-Pacific Research Strategy View
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Morgan Stanley takes a tactical bullish view on SembCorp Industries (SCIL.SI), expecting the share price to rise in absolute terms over the next 45 days, with a subjectively assessed probability above 80% ('highly likely'). The core driver is Singapore spot spark spreads at three-year highs, averaging above S$80/MWh year-to-date in 2026, far above consensus of S$40/MWh and Morgan Stanley's own S$45/MWh forecast. Roughly one-third of the company's power contracts expire over the next 18 months and could be rolled at wider spreads, while surplus gas cargoes can be sold in 2H26; more aggressive European LNG procurement ahead of winter should support prices. Valuation is DCF-based, assuming a 7.9% WACC and 1% perpetual growth, drawing on improved cash-flow visibility across renewable and conventional generation in Singapore, the UK, India and China. At 10.8x 2027e P/E and a roughly 5% dividend yield, the stock prices in limited upside from wider power spreads and from potential value release via an India renewables IPO.
Rating: Overweight; industry view In-Line; target price S$6.60 versus the August 31, 2026 close of S$5.92 (52-week range S$7.20-5.22). Upside risks include renewable capacity additions and higher energy prices; downside risks include refinancing delays, weak renewable resources and lower Singapore power prices.