SIIC ENVIRONMENT HOLDINGS LTD
BHK.SI
SIIC Environment Holdings (SIIC SP) - Set For Solid Growth Ahead
- The Chinese Government has never been more firm in its stance to fight pollution. With the 13th FYP, we expect investments in treating environmental pollution to increase, going into 2016.
- An increase in public-private-partnerships in China’s wastewater space is likely to lift the number of TOT projects granted by local governments.
- SIIC is our top sector pick with a TP of SGD1.18 (56% upside) due to its strong growth potential from capacity growth and water tariff hikes.
Among the top five municipal wastewater players in China.
- SIIC Environment Holdings (SIIC) is among the largest wastewater treatment firms in China. It has over 80 water treatment projects with a daily contracted treatment capacity of 7.1m tonnes. Management guided to add 1m-1.5m tonnes per day of capacity each year in FY14-FY16F. In 2015, however, it exceeded its target and added 1.7m tonnes of daily capacity.
- We are confident of SIIC’s ability to meet its growth targets and project capacity to grow at 1.1m tonnes in 2016.
Strong track record of acquisitions.
- Over the last five years, there were 10 mega acquisitions (acquisitions of assets with >1 million tonnes capacity) in the China wastewater space. Of these, five were done by SIIC. We believe that this is largely due to SIIC’s strong management credentials – executive chairman Zhou Jun has over 20 years of experience in financial investment as well as in M&As.
- We believe this is the key reason SIIC’s historical acquisitions and projects have been able to reap IRR of about 10-11% compared with the industry average of 8%.
Potential upside from upgrading projects.
- As at 2013, 70% of the company’s plants have a discharge standard of Grade 1B and Grade 2. With the Water Action Plan set out by the Central Government in Apr 2015, we believe there could be more upgrading projects in 2016 as the policy to improve discharge quality trickles down to provinces and counties.
- Such projects would also allow SIIC to negotiate for higher tariff fees in the future.
BUY this top sector pick, with a TP of SGD1.18.
- SIIC is our preferred pick in the utilities sector as we anticipate a higher upside from the potential water tariff hike.
- We also like its management’s astute qualities and prudence in securing good acquisition targets.
Juliana Cai
RHB Research
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http://www.rhbinvest.com.sg/
2015-12-02
RHB Research
SGX Stock
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1.18
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