SIIC ENVIRONMENT HOLDINGS LTD.
BHK.SI
SIIC Environment Holdings - Playing Catch Up
What’s new?
Proposed acquisition of 60% of Ranhill Water.
- Ranhill Water (Hong Kong) Ltd (Ranhill Water) does mainly industrial wastewater treatment services on a concession basis and has a total design capacity of 260,000 tonnes/day. The purchase consideration amounts to CNY273.9m, implying about 11x FY15 P/E.
- It will be funded by bank borrowings and internal cash resources. Upon completion of acquisition, SIIC Environmental Holdings’ (SIIC) year-to-date newly added capacity totals 572,500 tonnes/day.
Our view
Foray into industrial wastewater projects.
- The proposed acquisition marks SIIC’s main foray into industrial wastewater treatment. This is in line with its plan to expand into related businesses, including industrial wastewater, sludge treatment and waste-to-energy projects.
- We believe SIIC would be able to combine Ranhill Water’s competencies in industrial water and its strong presence in China to secure more industrial wastewater projects in the future.
Risk of industrial wastewater projects.
- Industrial wastewater projects typically have higher IRR of >10%, but also risk lower volumes if the industry slows.
- We note all of Ranhill Water’s contracts are signed with industrial parks or economic development zones at the moment, which should see more stability in wastewater volumes.
Reiterate BUY and SGD1.26 TP.
- We expect this acquisition to increase SIIC’s bottom line by about 6%. As we have already included M&As and capacity increase into our forecasts, we keep our FY16F-18F earnings unchanged. SIIC maintains its capacity growth target of 1-1.5m tonnes/day for FY16F.
- We continue to expect more new projects to be announced in the upcoming months.
Juliana Cai
RHB Invest
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http://www.rhbinvest.com.sg/
2016-09-02
RHB Invest
SGX Stock
Analyst Report
1.260
Same
1.260
