CITIC Envirotech Ltd - DBS Research 2017-02-13: Accelerating development progress

CITIC Envirotech Ltd - DBS Vickers 2017-02-13: Accelerating development progress CITIC ENVIROTECH LTD. CEE.SI

CITIC Envirotech Ltd - Accelerating development progress

  • Two SOE-backed major shareholders have helped to secure new deals.
  • Expect acceleration in execution and construction progress.
  • Raised FY17 earnings forecast by 20% with TP revised up to S$0.80.
  • Recent strong rally of 35% has already reflected positives. Maintain HOLD.

Pick-up in deal flow. 

  • Two major SOE shareholders, CITIC Group and China Reform Puissance, have helped CITIC Envirotech Ltd (CEL) achieve breakthroughs in new deals. We expect new deal execution to accelerate. 
  • Coupled with its leading technology in membrane, CEL is well positioned to grab more market share in the water sector. 
  • Nevertheless, the stock has gained 35% in the past two months which we believe has reflected the positives. Maintain HOLD.

Breakthrough in deals. 

  • After China Reform Puissance acquired KKR’s entire stake of 269m shares at S$1.45/sh and became the second largest shareholder of CEL with a 23.85% stake, more co-operation between the two major shareholders has allowed CEL to win more deals. For instance, CEL recently won its first river restoration project in Jiangsu and the first BOO project in hazardous waste treatment. 
  • In view of the serious problem of black and stinky water bodies and strong demand for construction of sponge city, this track record will help CEL to win more market share. In addition, CEL has secured the second PPP project for the treatment of industrial waste water in Guangdong. In fact, CEL had project wins of c.Rmb5bn in 2016, compared with c.Rmb3bn in 2015.
  • We are optimistic that CEL’s deal flow will continue to grow. With a stronger order backlog, we expect construction progress to accelerate going forward.

Application of MBR in more projects. 

  • While CEL’s industrial wastewater treatment plants are using its MBR (membrane bioreactor), we are seeing the application of MBR in more municipal wastewater treatments as the standard is enhanced, such as in the Chengdu Xingrong project. After the completion of phase I, which has grade 1B standard (equivalent to category V), phase II, which requires category IV standard, is now under negotiation. 
  • To further enhance the technical know-how in membrane, CEL has formed a JV with Aquarius Membrane in the US to carry out R&D and explore new business opportunities in the US, such as reverse osmosis membrane and nanofiltration membrane. These technologies have a wide applications, such as F&B, medical field, etc.


  • We have revised up our FY17 earnings estimate by 20% to reflect the acceleration in execution and construction progress. 
  • Our new TP is set at S$0.8, based on 12x, 20x and 20x 12-month rolling PE (adjusted for construction revenue) for EPC, treatment services and membrane sales respectively. 
  • Maintain HOLD.

Patricia YEUNG DBS Vickers | 2017-02-13
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.80 Up 0.60