CITIC Envirotech (CEL SP) - UOB Kay Hian 2017-04-27: New Wins Support S$1b (Rmb4.9b) Project-Win Confidence

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CITIC ENVIROTECH LTD. CEE.SI

CITIC ENVIROTECH (CEL SP) - New Wins Support S$1b (Rmb4.9b) Project-Win Confidence

• CEL’s 1Q17 results were in line with our expectations, with revenue increase led by the engineering segment. 
• CEL recently reported two contract wins of Rmb230m and Rmb203m in April, underlining our confidence in its order-win momentum. The Rmb20b credit facilities secured supports its S$1b (Rmb4.9b) project win target.
• Maintain BUY and DCF-based target price of S$1.10.

WHAT’S NEW

CEL’s 1Q17 results in line, revenue increase led by the engineering segment. 

• In line with our expectation, CITIC Envirotech (CEL) reported a 44.7% yoy jump in 1Q17 net profit on the back of a 14% yoy rise in revenue. The revenue increase was led by a surge in the engineering business from S$41.4m to S$63.5m. This more than offsets a decrease in membrane sales (from S$22.1m to S$12.5m) due to the completion of a major project. 
• Other income was also higher due to a S$12.8m government grant to modify the treatment process to achieve higher discharge standards.

STOCK IMPACT

Rmb434m new contract win supports our confidence in order-win momentum. 

• As CEL continues to report new contract wins (Apr 17: Rmb230m in Shandong, Rmb204m in Hebei), our confidence in its order-win momentum is also sustained, supporting its S$1b (Rmb4.9b) target.

Rmb20b credit facilities underline S$1b (Rmb4.9b) project win target. 

• With an expected Rmb900b worth of new projects in China for 2017 and a 9% growth going forward, we believe its Rmb20b credit loan facility also underpins its contract win confidence, implying that the Rmb434m project wins in April is just the beginning.

EARNINGS REVISION/RISK

• No change to earnings forecasts. As 1Q17 results were in line with our expectation, we maintain our earnings forecasts for 2017 and 2018.

VALUATION/RECOMMENDATION

• Maintain BUY and S$1.10 DCF-based target price on the back of: 
  1. CEL’s advanced membrane technology, 
  2. China’s continued focus and efforts towards combating environmental pollution, and 
  3. CEL’s new order wins.

SHARE PRICE CATALYST

• New contract wins. Further contract wins will cement the market’s confidence in CEL’s S$1b new order-win target.

Edison Chen UOB Kay Hian | Nicholas Leow UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-27

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.100 Same 1.100