United Envirotech Limited

OCBC on 24 Apr 2012

United Envirotech Limited (UEL) has just secured two more projects in China. The first is a large RMB216m (S$43m) EPC project to build a 100k m3/day drinking water plant in Yantai City, Shadong Province. UEL also won the tender for a Transfer-Operate-Transfer (TOT) project in Shangzhi, Harbin city, Heilongjiang Province, which UEL is investing RMB70m (S$14m) for a 30-year concession to operate the 40k m3/day treatment plant. Going forward, UEL says it will continue to actively explore investment opportunities in China’s north-eastern region, especially around the Song Hua River. Based on the usual 40% equity funding ratio, we estimate that the remaining S$100m proceeds from its CB issue can finance up to another S$250m worth of projects. With its latest TOT win, we bump up our FY13 revenue and earnings estimate by 2% and 3% respectively. As such, our DCF-based fair value inches up slightly from $0.50 to S$0.52. Maintain BUY.

Secures RMB216m EPC project
United Envirotech Limited (UEL) has just secured two more projects in China. The first is a large RMB216m (S$43m) EPC project to build a 100k m3/day drinking water plant in Yantai City, Shadong Province. The project will commence immediately and when completed by end-2013, it will be one of the largest drinking water plants using a dual membrane technology in China. However, UEL expects to only recognise the bulk of this project’s revenue in FY13.

Another TOT project worth RMB70m
Earlier, UEL won the tender for a Transfer-Operate-Transfer (TOT) project in Shangzhi, Harbin city, Heilongjiang Province, which UEL is investing RMB70m (S$14m) for a 30-year concession to operate the 40k m3/day treatment plant. The plant is one of the environmental protection projects initiated by China’s State Council to protect the water quality along the famous Song Hua River. The plant is expected to operate at full capacity in Jul 2012, up from the current 75% utilisation. UEL plans to fund 40% of the investment with proceeds from its KKR convertible bond (CB) issue, and the remaining 60% with project financing.

More opportunities in Song Hua River region
Going forward, UEL says it will continue to actively explore investment opportunities in China’s north-eastern region, especially around the Song Hua River. We understand that UEL has already identified several potential acquisitions which require very high Grade 1A discharge limits. Based on the usual 40% equity funding ratio, we estimate that UEL’s remaining S$100m of CB proceeds can finance up to another S$250m worth of projects.

Maintain BUY with S$0.52 fair value
With its latest TOT win, we bump up our FY13 revenue and earnings estimate by 2% and 3% respectively. As such, our DCF-based fair value inches up slightly from $0.50 to S$0.52. Maintain BUY.