800 Super Holdings Ltd - Phillip Securities 2017-11-13: Operationally Stable, Projects Coming Online

800 Super Holdings Ltd - Phillip Securities 2017-11-13: Operationally Stable, Projects Coming Online 800 SUPER HOLDINGS LIMITED 5TG.SI

800 Super Holdings Ltd - Operationally Stable, Projects Coming Online

  • Revenue beat our estimate by 4.7%. Consequently, PATMI is 5.3% higher than expected.
  • Staff cost pressure squeezing margin.
  • WTE plant has obtained its TOP.
  • Lowest-priced bidder for the Pasir Ris-Bedok PWC tender.

The positives 

Projects on-track and turning operational. 

  • The waste to energy (WTE) plant has obtained its Temporary Occupancy Permit and will undergo testing and commissioning before end 2017. 
  • The sludge treatment facility is on-track for completion in 2Q 2018.

The negatives 

YoY higher opex was led by higher staff cost and other expenses.

  • The largest cost component, staff cost (59% of opex), was 3.4% higher – mainly due to lower level of government grant. Other expenses (16.4% of opex), was the second largest cost component and had the largest percentage increase of 8.8% YoY. 
  • We think staff cost will continue to apply pressure, but other expenses had a one-off component in relation to mergers and acquisitions. Recall that the proposed acquisition of Iwash Laundry was announced in early October and completed soon after.


  • The outlook is stable with possibility of positive surprise from securing Pasir Ris-Bedok PWC contract.

WTE plant and sludge treatment will be an initial drag on bottom line, but we anticipate dividends to be maintained 

  • No change in our view from the previous quarter: We are expecting near-term PATMI weakness in FY18 and FY19. This is due to the higher depreciation expense from the WTE plant and sludge treatment facility when they are completed, but initially under-utilised during their respective ramp-up periods. 
  • However, cash flow from operations is expected to remain stable. Consequently, 4.0 cents dividend is sustainable going forward.

Credible chance of securing Pasir Ris-Bedok PWC contract with lowest-priced bid 

  • 800 Super had put in the lowest-priced bid of $194 mn for the Pasir Ris-Bedok Public Waste Collection (PWC) contract. Recall that the existing Pasir Ris-Tampines and Bedok sectors, where Veolia and SembWaste are the respective incumbents will be consolidated by the National Environment Agency (NEA). The rationale given by NEA is to increase the number of households per sector and improve economies of scale and efficiency. The existing Pasir Ris-Tampines and Bedok contracts are supposed to conclude in June 2018 and October 2018, respectively.

Maintain Buy; lower target price of $1.43 (previously $1.53) 

  • We like the stock for its recession-proof business model, yet with a pipeline of projects to drive medium-term growth. The ongoing sludge treatment facility is expected to contribute to Group earnings over the long-term. 
  • Some minor changes to our estimates, and we are using a higher WACC of 6.8% from previous 6.6%, with terminal growth unchanged.
  • Winning the Pasir Ris-Bedok PWC contract will lead us to adjust our estimates upwards.
  • Our target price gives an implied FY18e forward P/E multiple of 15.9x.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2017-11-13
Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 1.43 Down 1.530