BUY on CITIC deal
- Results below expectations on weak engineering revenue. Other high-quality revenue streams remained solid
- Cut EPS by 3-7% on lower engineering revenue forecasts
- BUY on game-changing CITIC deal. TP unchanged at SGD2.0.
Below expectations
- United Envirotech’s 1QFY3/16 results were below our expectations.
- Reported net profit of SGD3.7m was down 84% YoY due to one-off items.
- Excluding one-off gain of SGD14.2m from disposal of Memstar incurred last year and one-off fees of SGD6.5m relating to the CITIC deal this year, adjusted net profit grew by 20% YoY in 1Q.
- Adjusted net profit formed 16% of our full-year forecast.
- Sector-wise, treatment fees increased by 76% YoY and membrane sales increased by 28% YoY, both meeting expectations. The growth in treatment fees was driven by acquisitions.
- Key miss for this quarter was from engineering division which declined slightly.
Maintain BUY with unchanged TP
- Although 1Q net profit fell short of our expectations, we are not overly concerned as the miss was largely from the engineering division which is lumpy and low-margin in nature.
- UENV’s high-margin and more stable revenue streams, i.e. wastewater treatment and external membrane sales, remained solid.
- Our investment thesis for UENV remains intact. As CITIC becomes controlling shareholder, UENV is entering a new growth chapter by leveraging CITIC’s resources.
- We believe investors should not focus too much on its near-term earnings volatility during transformation period but on its long-term growth potential.
- Thus we now value UENV based on average EPS over the next three years instead of FY3/16 EPS.
- We cut EPS by 3-7% for the next three years on more conservative engineering revenue forecasts but maintain BUY call.
- Our TP is maintained at SGD2.0, pegged to 27x PER, a 10% discount to peers due to its smaller recurring income base.
Analyst: Wei Bin
Source: http://www.maybank-ke.com.sg/
