CITIC Envirotech (CEL SP) - UOB Kay Hian 2017-11-03: 3Q17 Stellar Results As Expected

CITIC Envirotech (CEL SP) - UOB Kay Hian 2017-11-03: 3Q17 Stellar Results As Expected CITIC ENVIROTECH LTD. CEE.SI

CITIC Envirotech (CEL SP) - 3Q17 Stellar Results As Expected

  • CITIC Envirotech (CEL) delivered stellar 3Q17 results with net profit surging 154.3% yoy. Together with its sustained project wins momentum (exceeded its S$1b target by around 50%), 
  • CEL has shown its ability in securing new projects and executing them successfully. Going forward, we believe CEL is well positioned as China demands higher water quality standards. We reiterate our confidence in CEL’s ability and see consensus earnings estimates as conservative. 
  • Maintain BUY and target price of S$1.10.



RESULTS


Stellar 3Q17 results in line with expectations. 

  • CITIC Envirotech (CEL) delivered stellar results in 3Q17 with net profit surging 154.3% yoy to S$61.0m. 9M17 net profit of US$96.8m accounts for 71.6% of our full-year forecast. 
  • Top-line also jumped 99.8% yoy, mainly due to the increase in engineering sales from S$83.0m to S$226.0m (+172.3% yoy). 
  • Growth in the recurring water treatment business continued with revenue increasing 12.1% yoy to S$44.6m.


STOCK IMPACT


Recurring water treatment growth will catch up with engineering’s. 

  • While growth from recurring water treatment is lower than that from engineering, we note the time lag between project engineering’s start and completion. As such, we believe that this year’s growth in the engineering segment will lead to a huge jump in recurring water treatment profits next year.

Delivering prior S$1b project wins target brings confidence in CEL’s ability. 

  • CEL has delivered on its S$1b project wins target to hit about S$1.5b. Together with the stellar 3Q17 results, we believe this is a testament of CEL’s ability in securing contracts and executing them successfully. We believe the street is too conservative on CEL’s ability to win projects and achieve profits. 
  • We reiterate our confidence in CEL delivering profit growth and hitting our forecast for 2H17.

CEL well positioned as China demands higher water quality. 

  • China is demanding higher standards for wastewater and positions (and the future) of government officials are tied to how well they meet these hard targets. 
  • Currently, conventional technology cannot fulfill long-term guidelines and the only viable technology available is membrane technology. As such, we believe CEL is extremely well positioned in the current scenario and should sustain its order wins momentum.


EARNINGS REVISION/RISK

  • No change to our earnings estimates.
  • Key risks include a delay in project construction and a weakening of the renminbi.


VALUATION/RECOMMENDATION

  • Maintain BUY and DCF-based target price of S$1.10.


SHARE PRICE CATALYST

  • Further project wins.
  • Share buybacks from CEL.




Edison Chen UOB Kay Hian | Nicholas Leow UOB Kay Hian | http://research.uobkayhian.com/ 2017-11-03
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.100 Same 1.100



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