United Envirotech

OCBC on 8 AUg 2012

United Envirotech Limited (UEL) reported that the start of several new projects it secured over the past few months boosted its 1QFY13 revenue, which surged 54.2% to S$20.8m, meeting ~20% of our FY13 estimate. Net profit jumped 66.3% to S$5.9m, or 25% of our full-year forecast, was also aided by the increasing treatment revenue, which comes with much higher margins. Going forward, management expects UEL’s growth momentum to outperform that of FY12, buttressed by its recent contract wins. UEL also believes there are opportunities for TOT/BOT/BOO investment projects in China and is actively seeking out suitable projects. Upgrading of old water treatment plants also holds great promise and UEL has embarked on several of such projects, including some of its existing plants. Since the results were in line with our forecast, we opt to leave them unchanged for now. We maintain our BUY rating with a revised fair value of S$0.425, based on 13.5x FY13F EPS (versus 12.8x previously).

Good start to FY13
United Envirotech Limited (UEL) saw its 1QFY13 revenue surging 54.2% YoY to S$20.8m, meeting ~20% of our FY13 estimate. Net profit jumped 66.3% to S$5.9m, or 25% of our full-year forecast, was also aided by the increasing treatment revenue, which comes with much higher margins. By segments, Engineering jumped 58% YoY and 111% QoQ to S$25.3m, largely due to EPC work to upgrade the Liaoyang TOT project. 30% of the RMB104m contract has been recognized, with another 60% likely to be recognised in 2QFY13. Treatment revenue rose 42% YoY (but -6% QoQ) to S$6.8m. Management expects revenue to stabilise at ~S$7m/quarter.

Still looking for investment opportunities
Management believes there are opportunities for TOT/BOT/BOO investment projects in China and is actively seeking out suitable projects. At end-Jun, UEL is sitting on a cash balance of S$98.6m. This puts it in a strong position to compete against other domestic bidders, given the current onshore credit situation is still relatively tight. Based on its usual 40:60 equity-debt funding ratio, we estimate that UEL can finance up to S$245m worth of additional projects.

Outlook remains upbeat
Management expects UEL’s growth momentum to outperform that of FY12 and cited the growing demand for membrane-based water and waste-water services. Demand for such services are driven by the stricter discharge limited imposed by the Chinese government and the shortage of water supply in various parts of the country. Upgrading of old water treatment plants also holds great promise and UEL has embarked on several of such projects, including some of its existing plants.

BUY with new S$0.425 fair value
Since the results were in line with our forecast, we opt to leave them unchanged for now. We maintain our BUY rating with a revised fair value of S$0.425, based on 13.5x FY13F EPS (versus 12.8x previously).