United Envirotech Ltd (UEL) reported 1HFY14 climbing 11.7% to S$96.0m, meeting 45.9% of our FY14 forecast, but net profit slipped 7.9% to S$12.9m, or 28.9% of our full-year estimate, mainly due to higher-than-expected operating and interest expenses. Due to the persistent nature of the ESOS expenses (70m option shares outstanding) and higher amortization of the convertible bonds, we pare our earnings estimates for FY14 by 22.5% and FY15 by 10.5%. Our fair value dips from S$0.975 to S$0.83, even as we roll forward our 13x peg from FY14F to blended FY14F/FY15F EPS. Maintain HOLD; we would be buyers closer to S$0.80 or below.
1HFY14 earnings below forecast
United Envirotech Ltd (UEL) reported 2QFY14 revenue of S$52.0m, down 3.6% YoY but up 17.9% QoQ, driven by higher recurring water treatment revenue (+56.6% YoY, +20.1% QoQ) to S$15.5m. While net profit was down 11.7% YoY to S$7.1m, it was up 24.4% QoQ. For 1HFY14, revenue climbed 11.7% to S$96.0m, or 45.9% of our FY14 forecast, while net profit slipped 7.9% to S$12.9m, meeting 28.9% of our full-year estimate, mainly due to higher-than-expected operating (extra S$1.3m from ESOS) and interest (recently issued some bonds from its MTN program) expenses.
Still looking to add to portfolio
Speaking of which, cash balance is back up to S$82.3m as of end 2QFY14, boosted by the receipt of S$63m from the bond issue. Based on its usual 40% equity/60% debt financing strategy, UEL can acquire up to S$205m worth of water treatment plants. Indeed, we understand that management is currently looking at viable TOT projects in both municipalities and textile-related industrial parks. Separately, it is also tendering in some EPC projects collectively worth up to RMB800m. Current EPC order book is around S$100m, which UEL expects to deliver into Sep 2014.
Paring earnings estimates
Due to the persistent nature of the ESOS expenses (70m option shares outstanding) and higher amortization of the convertible bonds, we need to pare our earnings estimates for FY14 by 22.5% and FY15 by 10.5%. And even as we roll forward our 13x peg from FY14F to blended FY14F/FY15F EPS, our fair value dips from S$0.975 to S$0.83. Nevertheless, we note that UEL should still see improving net margins as it takes on more recurring treatment revenue (EBITDA margin of nearly 60%). Maintain HOLD. We would be buyers again closer to S$0.80 or below.
United Envirotech Ltd (UEL) reported 2QFY14 revenue of S$52.0m, down 3.6% YoY but up 17.9% QoQ, driven by higher recurring water treatment revenue (+56.6% YoY, +20.1% QoQ) to S$15.5m. While net profit was down 11.7% YoY to S$7.1m, it was up 24.4% QoQ. For 1HFY14, revenue climbed 11.7% to S$96.0m, or 45.9% of our FY14 forecast, while net profit slipped 7.9% to S$12.9m, meeting 28.9% of our full-year estimate, mainly due to higher-than-expected operating (extra S$1.3m from ESOS) and interest (recently issued some bonds from its MTN program) expenses.
Still looking to add to portfolio
Speaking of which, cash balance is back up to S$82.3m as of end 2QFY14, boosted by the receipt of S$63m from the bond issue. Based on its usual 40% equity/60% debt financing strategy, UEL can acquire up to S$205m worth of water treatment plants. Indeed, we understand that management is currently looking at viable TOT projects in both municipalities and textile-related industrial parks. Separately, it is also tendering in some EPC projects collectively worth up to RMB800m. Current EPC order book is around S$100m, which UEL expects to deliver into Sep 2014.
Paring earnings estimates
Due to the persistent nature of the ESOS expenses (70m option shares outstanding) and higher amortization of the convertible bonds, we need to pare our earnings estimates for FY14 by 22.5% and FY15 by 10.5%. And even as we roll forward our 13x peg from FY14F to blended FY14F/FY15F EPS, our fair value dips from S$0.975 to S$0.83. Nevertheless, we note that UEL should still see improving net margins as it takes on more recurring treatment revenue (EBITDA margin of nearly 60%). Maintain HOLD. We would be buyers again closer to S$0.80 or below.
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