SIIC Environment - DBS Research 2016-04-28: Awaiting for new deals

SIIC Environment - DBS Research 2016-04-28: Awaiting for new deals SIIC ENVIRONMENT HOLDINGS LTD BHK.SI 

SIIC Environment - Awaiting for new deals 

  • Decent growth of 30.9% in 1Q net profit 
  • Target for new capacity remains at 1-1.5m for FY16 to be achieved through M&A 
  • Embark on sludge treatment market 
  • Maintain HOLD with TP of S$0.69 


  • SIIC Environment reported a 30.9% growth in 1QFY16 net profit to Rmb89.5m, on the back of 50.5% growth in turnover to Rmb563m. 
  • Growth was attributable to a 135% jump in construction revenue and mid-teens growth in O&M revenue. Balance sheet remained strong with net debt-equity ratio of 42%. 
  • SIIC announced the signing of just 1 new project so far this year, which is a PPP project in Suizhou with a total design capacity of 50,000 tons per day. 
  • While the target of adding 1-1.5m tons/day of water treatment capacity in FY16 remains intact, management reckons that there are still abundant of opportunities in the market. We believe the target can be achieved through a major M&A deal. 
  • A 435 tons/day sludge treatment project is under construction in Wuhan Hanxi plant and is targeted to commence operation at the end of this year. Coupled with the upgrade of waste water treatment and expansion of capacity, water treatment tariff (including sludge treatment fee) will be increased from Rmb0.7 to Rmb1.19 per ton. With these value added services, IRR of this plant is higher. 
  • Management reckons the sludge treatment market has good potential, given its portfolio of 5m tons/day of waste water treatment projects. There is no new WTE project so far this year. But management sounded confident of striking a deal this year. If materialized, this could be a catalyst. 
  • Although 1Q results only accounted for 19% of our full year estimate, we maintain our earnings forecasts for now as we have already factored in contribution from new M&A. 
  • Our TP remains at S$0.69 which is based on 25x 12-month rolling PE of 25x. Maintain HOLD.

Singapore Research DBS Vickers | http://www.dbsvickers.com/ 2016-04-28
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.69 Same 0.69