Sanli Environment - SAC Capital 2019-06-10: FY2019 Earnings Impacted By Competition At Operations & Maintenance

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SANLI ENVIRONMENTAL LIMITED (SGX:1E3)

Sanli Environment - FY2019 Earnings Impacted By Competition At Operations & Maintenance

• Sanli Environmental (SGX:1E3)'s FY19 revenue fell 5.6% to S$71.4m, due to a 31% decline in O&M (operation and maintenance) revenue to S$13.5m, with keen competition from contractors hit by low construction demand in other sectors. On the other hand, EPC (Engineering, Procurement and Construction) revenue gained 3% to S$57.8m.
• Sanli Environmental’s edge in design and construction of water and waste treatment plant sets it apart from other contractors.
• Besides the smaller share of higher-margined O&M business, net profit was impacted by a 16.9% rise in administrative expenses to S$6.1m, as Sanli Environmental gained inroad into Myanmar with S$4.3m contract secured.

Singapore construction output projected to rise.

• According to the Building and Construction Authority, construction output in 2019 is estimated at S$28 – 30bn, an increase from S$27bn in 2018. The higher volume will help ease competitive pressure on contract pricing and manpower needs.

Diversification into industrial wastewater treatment.

• In anticipation of the growing demand for management of industrial water use for water-intensive industries in Singapore, Sanli Environmental has set up a business development unit to tap on the potential business opportunities. The Public Utilities Board and the National Research Foundation recently launched a S$26m fund to help industries implement water management solutions.

Orderbook of S$198m.

• Sanli Environmental’s orders on hand amounted to S$198m, bulk of these are EPC projects to be delivered over the next 3 years.

Maintain BUY at lower target price of S$0.290 per share.

• With keen competition and higher labour costs, we expect margins to remain under pressure. However, earnings would be sustained with a strong orderbook and an uptick in the construction sector.
• After factoring in lower margin, we arrived at a revised target price of S$0.290 per Sanli Environmental share, derived from DCF model (WACC: 5.5% and terminal growth: 2.0%).
• See
  • Sanli Environmental's Share Price,
  • Sanli Environmental's Target Price,
  • Sanli Environmental's Analyst Reports,
  • Sanli Environmental's Dividend History,
  • Sanli Environmental's Announcements,
  • Sanli Environmental's Latest News.
• Key risks: Reliant on Singapore public sector projects.
• See report attached below for complete analysis on Sanli Environmental (SGX:1E3).

Lam Wang Kwan SAC Capital Research | https://www.saccapital.com.sg/ 2019-06-10

SGX Stock Analyst Report BUY MAINTAIN BUY 0.29 SAME 0.29