Although United Envirotech Ltd (UEL) posted 9MFY14 earnings that fell short of our forecast, management remains upbeat about its waste-water treatment prospects in China, especially after getting the nod to acquire the membrane making operations of Memstar Technology. UEL not only expects to see cost-savings from making its own membrane, but it is also looking to go into third party membrane sales soon. To reflect the latest development, we bump up our FY15 revenue estimate by 20% but pare earnings by 2%. We also raise our valuation peg from 15x to 20x FY15F EPS, thus improving our fair value from S$1.00 to S$1.30. But given the limited upside, we maintain our HOLD rating.
Flat 3QFY14 earnings growth
United Envirotech Ltd (UEL) posted 3QFY14 revenue of S$64.3m, up 23% YoY and 24% QoQ, driven mainly by the increase in water treatment revenue of S$10.9m (+117% YoY, +30% QoQ); this also led to an income of gross margin to 47.0% versus 46.2% in 2QFY14 and 42.4% in 3QFY12. However, due to higher depreciation and interest charges, net profit eased 1% YoY (+17.8% QoQ) to S$8.4m. 9MFY14 revenue grew 16% to S$160.3m, meeting 82% of our full-year forecast, while net profit slipped 5.3% to S$21.3m, or just 62% of our FY14 estimate.
Memstar acquisition is “Go”
Separately, the acquisition of Memstar Technology’s (unrated) membrane operations has gotten the nod from both companies’ shareholders. While UEL could start consolidating the purchase from as early as 4QFY14, any meaningful impact is likely to be felt from 1QFY15. We understand that UEL is already looking to go into third party membrane sales (currently Memstar only uses ~50% of its total capacity, mainly for UEL’s use), and it believes it can achieve up to S$40m worth of these sales in FY15.
Outlook remains upbeat
Going forward, management continues to maintain a fairly upbeat outlook for the water industry in China. To underscore its point, UEL recently announced a 70:30 JV with Binjiang MC to acquire a 15k m3/day wastewater treatment plant for RMB150m. We understand that UEL is also in talks to secure more EPC projects – it is currently sitting on an order book of around S$250m, which it will deliver within a year.
Not that cheap now
To reflect the latest development, we bump up our FY15 revenue estimate by 20% but pare earnings by 2%. We also raise our valuation peg from 15x to 20x FY15F EPS, thus improving our fair value from S$1.00 to S$1.30. But given the limited upside, we maintain our HOLD rating.
United Envirotech Ltd (UEL) posted 3QFY14 revenue of S$64.3m, up 23% YoY and 24% QoQ, driven mainly by the increase in water treatment revenue of S$10.9m (+117% YoY, +30% QoQ); this also led to an income of gross margin to 47.0% versus 46.2% in 2QFY14 and 42.4% in 3QFY12. However, due to higher depreciation and interest charges, net profit eased 1% YoY (+17.8% QoQ) to S$8.4m. 9MFY14 revenue grew 16% to S$160.3m, meeting 82% of our full-year forecast, while net profit slipped 5.3% to S$21.3m, or just 62% of our FY14 estimate.
Memstar acquisition is “Go”
Separately, the acquisition of Memstar Technology’s (unrated) membrane operations has gotten the nod from both companies’ shareholders. While UEL could start consolidating the purchase from as early as 4QFY14, any meaningful impact is likely to be felt from 1QFY15. We understand that UEL is already looking to go into third party membrane sales (currently Memstar only uses ~50% of its total capacity, mainly for UEL’s use), and it believes it can achieve up to S$40m worth of these sales in FY15.
Outlook remains upbeat
Going forward, management continues to maintain a fairly upbeat outlook for the water industry in China. To underscore its point, UEL recently announced a 70:30 JV with Binjiang MC to acquire a 15k m3/day wastewater treatment plant for RMB150m. We understand that UEL is also in talks to secure more EPC projects – it is currently sitting on an order book of around S$250m, which it will deliver within a year.
Not that cheap now
To reflect the latest development, we bump up our FY15 revenue estimate by 20% but pare earnings by 2%. We also raise our valuation peg from 15x to 20x FY15F EPS, thus improving our fair value from S$1.00 to S$1.30. But given the limited upside, we maintain our HOLD rating.
No comments:
Post a Comment