Thursday, 14 August 2014

United Envirotech

Kim Eng on 14 Aug 2014

  • 1QFY3/15 core net profit up 40.4% YoY.
  • Potential purchase by interested investors a short-term catalyst but valuations rich against peers, especially given its smaller recurring income.
  • Maintain HOLD. TP raised to SGD1.44 (still 27x FY3/15E P/E) from SGD1.43 after minor EPS adjustments. Prefer Hankore and SIIC in the sector.
In line
1QFY3/15 revenue increased 50.5% YoY to SGD66.3m while net profit grew 273.7% YoY to SGD22.7m. Excluding a SGD14.2m gain from its disposal of Memstar shares, core net profit still grew 40.4% YoY. Both Engineering and Water Treatment performed well, with 23.1% and 58.9% YoY revenue growth respectively.

Maintain HOLD on rich valuations
We believe demand for membrane-based water treatment services in China is growing fast. Being an integrated water treatment solutions provider, UENV has some competitive edge in securing more projects, we believe.
We understand it has been approached by some interested investors to explore a share sale. Any such sale could be a short-term catalyst. However, UENV’s recurring income is still less than its peers’, while it trades at 31.6x FY3/15 P/E. Maintain HOLD as near-term positives may have been priced in. We raise our FY3/15E-16E EPS by less than 3%. Accordingly, our TP rises to SGD1.44 from SGD1.43, still pegged to 27x FY3/15E P/E, a 10% discount to peers due to its smaller recurring income base.

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