CITIC ENVIROTECH LTD.
.SI
Better positioned
- Acceleration of MBR development on a stronger platform.
- Demand for membrane in overseas market is increasing.
- Maintain BUY with TP of S$1.70.
On a stronger platform.
- CITIC Envirotech remains our top pick of the sector because it is on a stronger platform to develop its MBR technology. Given the low penetration rate of membrane technology in China, partnering with CITIC will help CEL extend its geographical reach and win more deals.
- We are also optimistic that the rising water treatment standard will lead to more demand for CEL’s MBR solution, particularly in industrial waste water treatment market. We believe positive synergy with CITIC will start to show in FY16.
Large potential in overseas market.
- CEL has the highest percentage of non-Rmb revenue from overseas market among the water companies, which is positive in view of the risk of further Renminbi depreciation. In fact, we are optimistic about the growth potential of membrane sales outside of China as rising demand for membrane in the international market is supported by the continued adoption of environmental regulations that require higher level of purity, climbing penetration in F&B processing market, etc.
- CEL has also started to expand its membrane production capacity and we expect output could double in the next few years.
Expansion plan from CITIC as a catalyst.
- CEL is currently in the process of integration and the new management team is working hard to iron out the future strategy. Once finalized, an announcement of the development plan will be a good share price catalyst.
- We set our TP at S$1.70, based on 15x, 35x and 18x FY17 adjusted PE for 3rd party EPC, treatment services and membrane sales respectively. We have lowered our target PE to reflect the fragile market sentiment.
Patricia YEUNG | http://www.dbsvickers.com/ DBS Securities 2015-09-16
1.70
Down
1.85
