SIIC Environment Holdings - RHB Invest 2016-11-09: Grabbing a Larger Piece Of The Pie

SIIC Environment Holdings - RHB Invest 2016-11-09: Grabbing a Larger Piece Of The Pie SIIC ENVIRONMENT HOLDINGS LTD. BHK.SI

SIIC Environment Holdings - Grabbing a Larger Piece Of The Pie

  • Reiterate BUY, as SIIC continues to journey up the ladder to be an industry leader. We believe its recent acquisitions of Longjiang Group and Ranhill Water could be instrumental in enabling it to: 
    1. Gain a stronger foothold in north-eastern China; 
    2. Break into the industrial wastewater market.
  • SIIC is one of our Top Picks for the sector. 
  • Our SGD1.13 TP (from SGD1.26) offers a 79% upside from its last closing price.

Acquisition completed. 

  • SIIC Environmental’s (SIIC) total design capacity has grown to over 10m tonnes/day from 7m tonnes/day, after it acquired Longjiang Environmental Protection Group (Longjiang Group) last month. With that, we expect Longjiang Group to lift SIIC’s full-year earnings, in 4Q16. 
  • Management’s guidance was also assuring. Its CFO, Mr Xu Zhan, thinks Longjiang Group’s net profit could grow at least 20% pa over FY17-18.

Big gets bigger. 

  • SIIC acquired a 60% stake in Ranhill Water back in September. We think this acquisition puts it in good stead to enter the industrial wastewater treatment sector. 
  • In addition, management has set a timeline to complete its Hong Kong dual listing by end-2Q17. After that, we believe that SIIC’s parent company, Shanghai Industrial, could inject its other water asset – a 45% stake in General Water of China – into SIIC.

Maintain BUY with a TP of SGD1.13. 

  • We trim our FY16F earnings by 6% to reflect the slower pace of acquisitions, while our FY17-18F numbers remain largely unchanged. 
  • We also roll over our DCF valuation to FY17F and derive a slightly lower TP of SGD1.13 (from SGD1.26), mainly due to the depreciation of the CNY against the SGD. 
  • We continue to like the company as it continues to consolidate the water industry by grabbing market share. 
  • Our new TP also implies 19x FY17F P/E.

Juliana Cai CFA RHB Invest | 2016-11-09
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.13 Down 1.260