UNITED Envirotech (UENV) has entered into a conditional placement of 100 million new shares to private equity group KKR at S$0.50 apiece.
This represents 17 per cent of its enlarged share capital prior to the conversion of US$113.8 million worth of convertible bonds also held by KKR; after conversion, KKR will own 45 per cent stake in UENV.
The proceeds are meant to acquire/upgrade water plants.
Just 50 per cent of the proceeds would enable UENV to add 13 per cent to current wastewater treatment capacity and S$16-18 million in annual water tariff receipts; this would raise FY2014/2015F earnings by 6 per cent/9 per cent.
More importantly, recurring Treatment income would rise to 65 per cent of EBIT from 60 per cent.
Apart from boosting UENV's capital base for more acquisitions, this follow-on investment indicates KKR is confident of UENV's growth potential. KKR's board representation would also raise UENV's profile and standard of corporate governance.
Following the new share placements to KKR and Memstar (buying 13 per cent stake), and assuming full conversion of the convertible bonds, TP is adjusted down to S$0.67 based on sum-of-the-parts valuation.
We have factored in conservative earnings accretion from the use of the new funds.
BUY
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