Citic Envirotech (CEL SP) - UOB Kay Hian 2017-05-19: Rmb3b Mega Project Cements Confidence In S$1b Of Upcoming Projects

CITIC ENVIROTECH (CEL SP) - UOB Kay Hian 2017-05-19: Rmb3b Mega Project Cements Confidence In S$1b Of Upcoming Projects CITIC ENVIROTECH LTD. CEE.SI

CITIC ENVIROTECH (CEL SP) - Rmb3b Mega Project Cements Confidence In S$1b Of Upcoming Projects

  • CEL announced a mega project that will focus on river restoration in Ningbo City, China with a value of Rmb3b. This, together with April Rmb434m wins, it will support our S$1b (Rmb4.9b) project win target. Therefore, we believe that the recent share price dip offers investors a chance to collect below CITIC’s and near CRF’s buy price. 
  • Re-reiterate BUY with target price unchanged.



WHAT’S NEW


Rmb3b mega project win in Ningbo. 

  • CEL just announced that it has secured a Rmb3b (approximately S$610m) Build Transfer project in Feng Hua District, Ningbo City, China for the restoration of rivers and the surrounding environment.

A JV project with CEL taking 77.5% interest. 

  • This mega project will be a JV project in which CEL will have an effective 77.5% interest (through a 60% direct stake and a 50:50 JV called CITIC Oasis which holds a 35% stake), followed by Wuxi Oasis with 17.5% (state-owned enterprise which provides river restoration, soil rehabilitation and water pollution control expertise), and 5% to the local government.

First phase of the project worth Rmb1.4b will begin immediately. 

  • Phase I of the project is worth around Rmb1.4b (S$280m) and is expected to begin immediately. It will involve river restoration works on 25 rivers and its surrounding landscape. 
  • Funding for the project will be from the issuance of the US$180m senior perpetual securities.


STOCK IMPACT


Mega Rmb3b project win cements our confidence in S$1b project win target.

  • Together with its earlier April project wins of Rmb434m, the new Rmb3b mega win cements our confidence in CEL’s S$1b (Rmb4.9b) target win from upcoming projects.
  • Given an expected Rmb900b worth of new projects upcoming for the industry in China for 2017 and a 9% annual growth going forward for the industry, we believe this strong order win momentum will be sustained and CEL will continue to announce further wins in 2017. 
  • We look forward to order wins in the area of hazardous waste/sludge treatment and management and circular economy (循环经济).

Price dip offers opportunity to acquire below CITIC’s and close to new investor CRF’s buy price. 

  • CEL’s recent price dip offers investors an opportunity to acquire below CITIC’s buy price of S$0.825 (adjusted) for the former United Envirotech and close to China Reform Fund’s (CRF) entry point of S$0.725.


EARNINGS REVISION/RISK

  • No change to earnings forecasts.


VALUATION/RECOMMENDATION

  • Maintain BUY and S$1.10 DCF-based target price on the back of: 
    1. CEL’s order win momentum, 
    2. advanced membrane technology, and 
    3. China’s continued focus and efforts towards combating environmental pollution.


SHARE PRICE CATALYST

  • New contract wins. Further contract wins will silence any doubts in CEL’s S$1b target.




Edison Chen UOB Kay Hian | Nicholas Leow UOB Kay Hian | http://research.uobkayhian.com/ 2017-05-19
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.100 Same 1.100



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