United Envirotech Ltd (UEL) has put in a strong set of 9MFY13 results, and management believes that the current government policy is still very positive towards environmental issues and the demand for water treatment in China is still growing. As such, it will be looking to invest in more water treatment projects; and we believe that funding is not an issue after the recent share placement to KKR. In view of its consistent execution, we raise our valuation peg from 12.5x blended FY13F/FY14F PER to 13.0x FY14F PER, and that brings our fair value up from S$0.67 to S$0.88. Maintain BUY.
Very strong 9M13 showing
United Envirotech Ltd (UEL) put in a strong set of 9MFY13 results, with net profit jumping 145.7% to S$22.5m, meeting 95% of our full-year forecast, after revenue surged 108.9% to S$138.2m, also 95% of our FY13 estimate. 3QFY13 revenue was up 159.4% at S$32.2m, while net profit was up 350.2% at S$8.5m. According to management, the strong showing came from higher engineering and treatment revenue over the period.
Looking for more water treatment projects
UEL will continue to expand its recurring income by investing in more water treatment projects in China, noting that the current government policy is still very positive towards environmental issues and the demand for water treatment in China is still growing. We understand that UEL has already identified several existing industrial waste-water projects in the coastal area around Shandong and Liaoning.
Funding is not an issue
Funding is also not an issue as KKR will be injecting another US$40m after the recent share placement of 98.5m new shares (or 20.6% of existing share capital) at S$0.50 each. Upon completion of the deal, KKR will have a direct interest of 45.2% on a fully diluted basis (assuming full conversion of US$113.8m of convertible bonds into shares at S$0.45 each). Based on its usual 40/60 funding split, the net proceeds alone can finance up to S$125m worth of projects. Hence with its current S$63.2m cash (as at 31 Dec 2012), we estimate that UEL can invest up to S$250m worth of water treatment projects.
Maintain BUY with higher S$0.88 fair value
We are raising our FY13 revenue forecast by 25% (FY14 by 39%) and earnings by 24% (FY14 by 36%). In view of its consistent execution, we also raise our valuation peg from 12.5x blended FY13F/FY14F PER to 13.0x FY14F PER, and that brings our fair value up from S$0.67 to S$0.88. Maintain BUY.
United Envirotech Ltd (UEL) put in a strong set of 9MFY13 results, with net profit jumping 145.7% to S$22.5m, meeting 95% of our full-year forecast, after revenue surged 108.9% to S$138.2m, also 95% of our FY13 estimate. 3QFY13 revenue was up 159.4% at S$32.2m, while net profit was up 350.2% at S$8.5m. According to management, the strong showing came from higher engineering and treatment revenue over the period.
Looking for more water treatment projects
UEL will continue to expand its recurring income by investing in more water treatment projects in China, noting that the current government policy is still very positive towards environmental issues and the demand for water treatment in China is still growing. We understand that UEL has already identified several existing industrial waste-water projects in the coastal area around Shandong and Liaoning.
Funding is not an issue
Funding is also not an issue as KKR will be injecting another US$40m after the recent share placement of 98.5m new shares (or 20.6% of existing share capital) at S$0.50 each. Upon completion of the deal, KKR will have a direct interest of 45.2% on a fully diluted basis (assuming full conversion of US$113.8m of convertible bonds into shares at S$0.45 each). Based on its usual 40/60 funding split, the net proceeds alone can finance up to S$125m worth of projects. Hence with its current S$63.2m cash (as at 31 Dec 2012), we estimate that UEL can invest up to S$250m worth of water treatment projects.
Maintain BUY with higher S$0.88 fair value
We are raising our FY13 revenue forecast by 25% (FY14 by 39%) and earnings by 24% (FY14 by 36%). In view of its consistent execution, we also raise our valuation peg from 12.5x blended FY13F/FY14F PER to 13.0x FY14F PER, and that brings our fair value up from S$0.67 to S$0.88. Maintain BUY.
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