Sanli Environment - SAC Capital 2021-07-28: Recovering From The Trough

SANLI ENVIRONMENTAL LIMITED (SGX:1E3) | SGinvestors.io SANLI ENVIRONMENTAL LIMITED (SGX:1E3)

Sanli Environment - Recovering From The Trough


Sanli's FY21 revenue better than expected.

  • Sanli Environmental (SGX:1E3)'s FY21 revenue declined 9.8% to S$60.5m, better than expected if taking into consideration the 2- month lockdown in Apr-May 2020 when all construction work were halted. Labour shortage and additional COVID-19 preventive measures added to costs and construction delay. Work has stopped in Myanmar (10% of revenue) since the political upheaval in Feb 2021.



Higher O&M revenue offset lower EPC.

  • The fall in EPC (Engineering, Procurement and Construction) revenue (-20.5%) was partly compensated by more higher-margined operations and maintenance works (+33.9%).
  • Share of O&M (Operations and Maintance) has risen to 29.1% of revenue (FY20: 19.6%) and 56.8% of gross profit (FY20: 40.5%). Still, margins for both segments were dragged down by the higher costs.
  • Overall gross margin fell 3.7 ppt to 7.3%. Net profit was 5.1% higher at S$0.3m, helped by a S$3.1m government grant.


FY21 is likely to be the trough for Sanli's earnings.

  • Singapore is heading towards a vaccination rate of 80% by Sep 2021 that enable further relaxation of movement restrictions and borders to re-open. This would allow more foreign workers to return, and construction projects to be ramped up.
  • We expect revenue to grow by 10% and 15% in the next two years, and gross margins to return to FY19’s level of ~14%.

Demand intact.

  • Singapore’s public sector still make up the bulk of its projects. Sanli Environmental’s recent S$73m contract win from COVID-19 remains the greatest risk.


BUY.






Lam Wang Kwan SAC Capital Research | Peggy Mak SAC Capital | https://www.saccapital.com.sg/ 2021-07-28
SGX Stock Analyst Report BUY MAINTAIN BUY 0.249 DOWN 0.290



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