SIIC Environment - DBS Research 2017-01-17: Room for more deals

SIIC Environment - DBS Vickers 2017-01-17: Room for more deals SIIC ENVIRONMENT HOLDINGS LTD. BHK.SI

SIIC Environment - Room for more deals

  • To place 350m new shares to major shareholder.
  • Placement price of S$0.63 at 11.5% premium to last closing price.
  • Expect net debt-to-equity ratio to improve to c.60%.
  • Maintain BUY with adjusted TP of S$0.68.



Positive despite share dilution. 

  • Despite the possible dilution from the share placement, we maintain our BUY rating on SIIC Environment (SIIC)
  • The company is making good progress of gradually expanding its water treatment portfolio with good growth potential from upgrades and tariff hikes. It is also grabbing opportunities in the sludge treatment market. 
  • After the share placement, its financial position will be strengthened, allowing it to conclude more M&A transactions.


Share placement to the parent at a premium. 

  • SIIC announced that it intends to place 350m new shares to Shanghai Industrial Holdings (363 HK), its parent company. The placement price is set at S$0.63 per share, representing a 11.5% premium to the previous day’s closing price. 
  • This reflects the strong confidence of the parent in SIIC. The new shares will account for c.13% of the enlarged share capital.
  • After the transaction, Shanghai Industrial Holdings will increase its stake from 36.6% to 45.9%.


Improved balance sheet. 

  • The net proceeds from the placement is estimated at S$220m which will be used to repay existing borrowings and utilized for business expansion. 
  • We estimate the net debt-to-equity ratio would improve from 80% to 60% after the transaction. 
  • With an improved balance sheet, SIIC is in a stronger position to take on more M&As or new projects.
  • Repayment of loans will also lower interest expenses.


Valuation

  • To reflect the share placement, our TP is adjusted to S$0.68, based on 25x FY17F PE (excluding construction revenue).


Key Risks to Our View

  • Operational. Slower-than-expected deal flows, project upgrades and tariff hikes will have downside risk on our earnings estimates.




Patricia YEUNG DBS Vickers | http://www.dbsvickers.com/ 2017-01-17
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.68 Down 0.780



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