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DBS Vickers 2015-08-03: United Envirotech Ltd - 2Q15 Results. Underlying growth still strong. Maintain BUY.

Underlying growth still strong 


  • Profit from underlying business up 20% in 1QFY16. 
  • Expect Chengdu Xingrong upgrade project to kick start in 2HFY16. 
  • Higher utilization rate of operating plants. 
  • Maintain BUY with TP revising down to S$1.85. 




1QFY16 net profit up 20% after stripping out one-off items. 


  • United Envirotech reported 84% y-o-y drop in net profit to S$3.7m in 1QFY16. 
  • However, after stripping out one-off disposal gain of Memstar Technology in 1QFY15 and fees related to the general offer in 1QFY16, net profit of the underlying business improved 20%. 
  • As there was no new 3rd party EPC projects, engineering sales remained flat. 
  • However, treatment sales jumped 76% y-o-y on improvement in utilization of treatment plants and more plants becoming operational. 
  • Membrane sales also exhibited robust growth of 28% y-o-y. 


Expect stronger growth in 2HFY16. 


  • We have revised down our growth assumption for engineering sales by 10ppts to reflect the slower growth in 1H. 
  • However, the formation of a JV with Chengdu Xingrong is close to a completion. 
  • Given the first block EPC work is already worth S$300m, this would boost engineering sales in 2H. 
  • We have also revised up our growth assumption by 29ppts to 46% for treatment services as improvement in utilization of operating plants was better than expected. 
  • We believe the uptrend in utilization continue. 
  • All-in, we have revised down our FY16 and FY17 earnings by 16% and 11% respectively. 


Maintain BUY. 


  • We maintain our BUY rating as we remain optimistic that UENV’s strong capability in membrane technology will help it to gain more contracts. 
  • Our TP is adjusted down from S$2.00 to S$1.85, which is based on 15x FY17 3rd party EPC earnings (adjusted to strip out construction revenue of BOT projects), 40x for treatment services and 18x for membrane sales. 
  • Downside risk would be a delay in the Chengdu Xingrong upgrade project or lumpy EPC order book. 


Analyst: Patricia YEUNG

Source: http://www.dbsvickers.com/


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