SIIC ENVIRONMENT HOLDINGS LTD.
BHK.SI
SIIC Environment Holdings - A Safer Wave To Ride
- Share prices of water sector stocks have been traded down on concerns of receivables risk in China as well as a slowing expansion rate. However, we continue to like SIIC for its:
- Wider exposure to first- and second-tier cities;
- Ability to grow organically via expansion and upgrading contracts;
- Low gearing ratio of 0.5x.
- Maintain BUY with a TP of SGD1.26 (110% upside).
Construction works still dominate topline growth in 1H16.
- With government policies that support the grading of wastewater treatment standards, we expect most of SIIC Environment’s (SIIC) upgrading projects to happen in FY16-17.
Expect operating income with upgrading projects.
- Currently, 11% of the company’s total design capacity is being expanded and upgraded. This will help to boost wastewater tariffs, ie when its projects are completed and commence operations next year.
- We believe this would support the growth of its operating income, if it does not make any new acquisition.
All eyes on 2H.
- In 1H16, SIIC’s newly-added projects only amounted to 312,500 tonnes, which is less than half its targeted capacity growth of 1m-1.5m tonnes.
- Management is confident of reaching this target, regardless of the potential acquisition of Longjiang Environmental Protection Group.
Maintain BUY with an unchanged DCF-derived TP of SGD1.26.
- Despite heightening concerns on the water sector, we think the fundamentals of this company have not changed. 1H16 numbers met 40% of our full-year estimate We maintain our earnings forecast, while our TP implies 20x FY17F P/E.
Juliana Cai
RHB Invest
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http://www.rhbinvest.com.sg/
2016-08-15
RHB Invest
SGX Stock
Analyst Report
1.260
Same
1.260
