CITIC ENVIROTECH LTD
U19.SI
Citic Envirotech: QoQ improvement in Sep quarter
Underlying earnings +42% QoQ
Order flows are back
No change to FY16 forecast
QoQ improvement in Sep quarter
- Citic Envirotech Ltd (CEL) saw its Sep quarter revenue tumble 32.7% YoY to S$70.9m, mainly due to weaker Engineering revenue (down 62.9% versus a year ago); but mitigated by the 28.9% jump in treatment revenue and 96.3% surge in membrane sales.
- NPATMI declined 16.5% to S$13.9m. But on a sequential basis, revenue was down just 15.5% QoQ while NPATMI actually jumped 318.8% (underlying profit grew 41.6%).
- As the company will be changing its year-end from end Mar to end Dec from next year onwards, this FY will consist of just three quarters. For the two quarters, revenue of S$154.7m fell 9.9%, while NPATMI dropped 56.0% to S$17.2m; but underlying net profit (before minority interest) slipped 5.3% to S$25.2m, after adjusting for a one-off S$6.5m fee relating to its general offer in Apr 2015, as well as a S$14.2m one-off gain on the disposal of AFS in the previous year-ago period.
Starting to get VAT rebate
- Also included in the results was the rebate of S$1.9m; this is to offset the recent 17% VAT that the China government imposed on water treatment income, and should allay earlier fears that the VAT would drastically affect the profitability of the company.
- Recall that management previously highlighted that the effective tax is less than 5% on tariffs for municipal treatment after rebates; there is no impact on industrial projects as the VAT is directly passed on to the end users.
One Belt, One Road prospects
- Going forward, management continues to remain upbeat about its prospects in China, citing stricter government policies on waste water discharge; the recent award of a RMB400m EPC project in Gansu Province is confirmation that the orders are starting to flow once again.
- Management also highlighted the opportunity for CEL to participate in the water infrastructure development projects along the One Belt, One Road trade routes; this after CITIC Limited announced in Jun 2015 that it would invest over RMB700b to support the initiative.
Maintain HOLD with unchanged S$1.40 fair value
- We have adjusted our FY15 estimates to reflect the shortened FY; but have left our FY16 estimates largely unchanged. As such, our fair value (based on 23x FY16F EPS) remains at S$1.40.
- Maintain HOLD.
Carey Wong
OCBC Securities
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http://www.ocbcresearch.com/
2015-10-30
OCBC Securities
Analyst Report
1.40
Same
1.40
