Sembcorp's ROE: Can Success Persist Above Industry Average?

Sembcorp Industries Ltd (SGX:U96) has consistently demonstrated a higher Return on Equity (ROE) than the industry average. In 2023, its ROE was 20%, surpassing the average ROE of 10% in the Integrated Utilities industry (Simply Wall St, 2023). This begs the question: Can Sembcorp's ROE continue to surpass the industry average?

Sembcorp's strong performance can be attributed to its strategic focus on renewable energy and urban solutions. The company's Renewables segment, which provides electricity from solar and wind resources, contributed S$200 million in net profit in 2023, a 42% increase from the previous year (Sembcorp Annual Report, 2023). The Integrated Urban Solutions segment, which develops large-scale integrated urban and integrated townships, also posted strong performance, with net profit of S$121 million. Sembcorp's focus on these areas has allowed it to leverage organic growth and partnerships, increasing its gross installed renewables capacity to 9.8GW and gross renewables capacity to 13.8GW as of February 2024.

However, maintaining a high ROE above the industry average may not be straightforward. While Sembcorp's growth in the renewables segment is promising, the company's high debt level may pose a risk. Its debt-to-equity ratio was 1.57 in 2023, indicating that it relies heavily on debt for financing. While debt can boost ROE, it also increases risk. An optimal debt-to-equity ratio varies by industry, but a generally accepted range is between 0.5 and 1.0. Sembcorp's ratio suggests that while it can maintain a high ROE, it should consider reducing debt to lower its risk profile.

Moreover, the volatility in energy markets and geopolitical tensions can impact Sembcorp's operations and financial performance. As a global company operating in various segments, Sembcorp is exposed to multiple revenue streams and markets, reducing its reliance on a single region or sector. However, this diversification also exposes the company to different risks and uncertainties. Therefore, investors should monitor geopolitical risks and energy market uncertainties, as these can impact Sembcorp's ROE.

To evaluate Sembcorp's future ROE, investors should consider several factors. Firstly, Sembcorp's business segments, such as Gas and Related Services and Renewables, have shown strong performance despite market challenges. Secondly, Sembcorp's commitment to energy transition and decarbonization may lead to long-term growth opportunities. Lastly, investors should monitor geopolitical risks and energy market uncertainties, as these can impact Sembcorp's operations and financial performance. By considering these factors and analyzing market trends, investors can make informed decisions about Sembcorp's future ROE.


In conclusion, Sembcorp's ROE has consistently surpassed the industry average, driven by its strategic focus on renewable energy and urban solutions. However, maintaining a high ROE above the industry average may not be straightforward, given the company's high debt level and exposure to energy market volatility and geopolitical risks. Investors should monitor these factors and analyze market trends to make informed decisions about Sembcorp's future ROE.