- 49:51 JV with Chengdu Xingrong, A-share listed water SOE. First block of capacity expansion/upgrading projects is about 1m tonnes/day, worth over SGD300m.
- Right way to expand, in our view.
- Maintain HOLD & SGD1.44 TP (27x FY3/15E P/E). Still prefer HanKore and SIIC.
United Envirotech has signed a framework agreement with Chengdu Xingrong to set up a 49:51 JV. Xingrong is a water SOE listed in China’s A-share market. It has a market cap of SGD3.5b and owns c.5m tonnes/day of water-treatment capacity. The JV will provide EPC services using UENV’s membrane technology and products. It will also invest in water-treatment projects in Western China.
Its first block of projects will involve the expansion and upgrading of wastewater treatment plants and recycling of treated wastewater with a combined capacity of 1m tonnes/day. Valued at more than CNY1.5b (SGD300m), the jobs will commence immediately and are expected to be completed by end-2015.
Right way to expand, in our view
We believe strategic partnerships with local players are the right way to expand for UENV. Xingrong is one of the largest water companies with a stronghold in Western China. UENV can leverage its local presence to penetrate new markets. Still, in view of a lack of immediate catalysts, maintain HOLD and SGD1.44 TP, at 27x FY3/15E P/E, 10% discount to peers due to its smaller recurring income base. Valuations are rich at 30.3x FY3/15E P/E. We still prefer HanKore and SIIC in the sector.
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