SIIC Environment Holdings - Vote Of Confidence By Its Parent
- We believe SIIC is set to register a strong performance in FY17, backed by high volumes of construction activities and full-year contribution from the acquisition of Longjiang Group in Oct 2016.
- Dual-listing in Hong Kong is still on the plate, but would only take place after the placement of shares to Shanghai Industrial is completed.
- We reduce our TP to SGD0.96 (from SGD1.13, 66% upside) to account for the dilution after the share placement. Maintain BUY.
Share placement to parent.
- The company announced a proposed placement on 16 Jan of 350m shares to its parent company, Shanghai Industrial (SI). The placement price of SGD0.63 represents a 9% premium from the current share price.
- We think this placement signals SI’s confidence in SIIC Environment Holdings’ (SIIC) outlook.
Growth target unchanged.
- Management maintains its target to grow 1-1.5m tonnes of treatment capacity in FY17. However, the bulk of management’s time is to be focused on the dual-listing of the stock. Thus, any major acquisition would likely only take place in 4Q17.
Near-term earnings drivers.
- In FY17F, construction revenue is likely to remain strong due to high volumes across its subsidiaries.
- Longjiang projects are likely to see upward price adjustments when its plants are upgraded over FY17F-18F.
Maintain BUY with DCF-derived TP of SGD0.96.
- We reduce our TP by 15% to reflect the proposed dilution after the share placement.
- Our TP implies 20x FY17F P/E, in line with the regional peer average.
- Key catalysts include dual-listing in Hong Kong and faster-than-expected acquisitions.