CNA

UOBKayhian on 20 Aug 2013

Turning around
Investment Highlights

• A potential new growth driver? CNA has announced a JV agreement with China’s state-owned enterprise SPACE-ONE to tap into China’s growing smart connected city market. More than 120 smart-city related initiatives have been launched by China government agencies, with 37 prefecture-level cities, 50 counties and 3 townships marked as potential smart cities in the next 3-7 years. With its pilot project in the pipeline, a successful implementation may present huge growth potential for CNA. While we are upbeat on the possible growth prospects of CNA, we remain cautious on the implementation risks that come with the venture.
• Significant war chest. After its recent capital raising, the group will have a cash position of about S$15.2m with a net debt/asset ratio of 14.7%.
• Two of Japan’s listed MNCs are strategic investors. In 2011, Mitsui & Co. Ltd (Mitsui) and Mitsubishi Electric Asia Pte Ltd (MEAP) subscribed to 35m new shares of CNA each at S$0.179/share and S$0.19/share. After the recent new share placement, Mitsui and MEAP will each hold 9.52% in CNA. Capitalising on its strategic investors’ network, CNA has been open to multiple business opportunities.
• Comeback in 4Q13 with contributions from recurring income.China has been a recent drag on earnings with delays in the construction of Dongying (DY) waste water treatment plant. With the completion of DY in 3Q, losses from China operations are expected to be curbed and start contributing positively to CNA’s earnings in 4Q13. Phase 1 of DY is expected to have a treatment capacity of 30,000mt/day, and CNA is expected to start receiving water tariffs from DY in 4Q13.
• A good 2013. 2013 has been a good year for CNA, as it secured S$13.8m worth of projects in 1H13 across Asia, which includes key projects like common use terminal equipment solution in Luang Prabang Airport in Laos, and installation of CNA’s local sequential controller systems in India Metro railway project and 16 of Singapore’s Downtown line underground MRT stations. CNA’s announced Thailand projects, which include the real estate development in Sriracha, Thailand with Tokyo-listed TamaHome, are expected to translate into another S$80m of new orders once contracts are finalised in 3Q13.