United Envirotech Ltd (UEL) reported 1QFY14 revenue of S$44.1m, +37.5% YoY (but -5.9% QoQ), meeting 19.5% of our FY14 forecast, while net profit slipped 2.6% YoY and 18.9% QoQ to S$5.7m, or about 12.2% of our full-year forecast. We deemed it to be a decent start as its fiscal first quarter tends to be seasonally softer. Going forward, management remains upbeat about its prospects in China, where the Chinese government has a planned investment on CNY4t in water resources by 2020; it adds that China is consistently tightening the effluent discharge standards. But we are tweaking our FY14 estimates slightly lower (revenue by 7.4%, earnings by 5.1%) to account for a likely smaller EPC pipeline. Our fair value also eases slightly from S$1.03 to S$0.975, still based on 13x FY14F EPS. Given the limited upside after the recent outperformance, we downgrade it to HOLD.
Decent 1QFY14 start
United Envirotech Ltd (UEL) reported 1QFY14 revenue of S$44.1m, +37.5% YoY (but -5.9% QoQ), meeting 19.5% of our FY14 forecast, while net profit slipped 2.6% YoY and 18.9% QoQ to S$5.7m, or about 12.2% of our full-year forecast. We deemed it to be a decent start as its fiscal first quarter tends to be seasonally softer. According to management, the higher revenue came from a 23.3% YoY jump in Engineering revenue to S$31.2m, while recurring Water Treatment revenue surged 89.7% to S$12.9m.
Focus on TOT
Going forward, management remains upbeat about its prospects in China, where the Chinese government has a planned investment on CNY4t in water resources by 2020; it adds that China is consistently tightening the effluent discharge standards. UEL foresees higher demand for its advanced membrane technologies to upgrade existing wastewater plants to meet more stringent discharge standards. As such, UEL will focus on securing existing TOT plants to add to its portfolio to expand its stable and recurring treatment income.
Also acquiring membrane manufacturing business
Separately, UEL has entered into an agreement to acquire 100% of Memstar Technology Ltd’s (MTL) membrane operations for S$293.4m – paying S$73.354m in cash and issuing 200.055m UEL shares at S$1.10 each. We believe that the acquisition of membrane operations should help it to become a more cost-efficient integrated waste-water treatment specialist; this could also open up another source of recurring income for UEL via the sale of membranes to third parties. UEL expects to complete the deal by Nov and would likely feel the most financial impact in 4QFY14.
Downgrading to HOLD with S$0.975 fair value
We are tweaking our FY14 estimates slightly lower (revenue by 7.4%, earnings by 5.1%) to account for a likely smaller EPC pipeline. Our fair value also eases slightly from S$1.03 to S$0.975, still based on 13x FY14F EPS. Given the limited upside after the recent outperformance, we downgrade it to HOLD.
United Envirotech Ltd (UEL) reported 1QFY14 revenue of S$44.1m, +37.5% YoY (but -5.9% QoQ), meeting 19.5% of our FY14 forecast, while net profit slipped 2.6% YoY and 18.9% QoQ to S$5.7m, or about 12.2% of our full-year forecast. We deemed it to be a decent start as its fiscal first quarter tends to be seasonally softer. According to management, the higher revenue came from a 23.3% YoY jump in Engineering revenue to S$31.2m, while recurring Water Treatment revenue surged 89.7% to S$12.9m.
Focus on TOT
Going forward, management remains upbeat about its prospects in China, where the Chinese government has a planned investment on CNY4t in water resources by 2020; it adds that China is consistently tightening the effluent discharge standards. UEL foresees higher demand for its advanced membrane technologies to upgrade existing wastewater plants to meet more stringent discharge standards. As such, UEL will focus on securing existing TOT plants to add to its portfolio to expand its stable and recurring treatment income.
Also acquiring membrane manufacturing business
Separately, UEL has entered into an agreement to acquire 100% of Memstar Technology Ltd’s (MTL) membrane operations for S$293.4m – paying S$73.354m in cash and issuing 200.055m UEL shares at S$1.10 each. We believe that the acquisition of membrane operations should help it to become a more cost-efficient integrated waste-water treatment specialist; this could also open up another source of recurring income for UEL via the sale of membranes to third parties. UEL expects to complete the deal by Nov and would likely feel the most financial impact in 4QFY14.
Downgrading to HOLD with S$0.975 fair value
We are tweaking our FY14 estimates slightly lower (revenue by 7.4%, earnings by 5.1%) to account for a likely smaller EPC pipeline. Our fair value also eases slightly from S$1.03 to S$0.975, still based on 13x FY14F EPS. Given the limited upside after the recent outperformance, we downgrade it to HOLD.
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