SANLI ENVIRONMENTAL LIMITED (SGX:1E3)
Sanli Environmental - Reopening To Accelerate Work Progress
- Sanli Environmental (SGX:1E3)'s 1H22 results in line. Net profit of S$0.9m was 54% of our FY22 earnings projection of S$1.7m. Revenue growth (+8.3%) stemmed from a 29% y-o-y gain in higher-margined operations and maintenance work booked in 1H22, which drove gross margin to 13.5% (1H21: 7.7%). Net profit gained 568% y-o-y due to exceptionally low base in 1H21 that was hurt by a 2-month lockdown when construction work were halted.
- Sanli Environmental received S$1.1m in government grant (1H21: S$1.7m).
No change to profit projections.
- We expect a stronger 38% revenue increase for Sanli Environmental in 2H22 over 1H22. Contract assets of S$15.4m as at Sep 21 (Mar 2021: S$12.5m) will be billed in 2H22. We expect construction sector to rebound with greater availability of workers from Dec 2021. The authority has stipulated that the workforce will return to office from Jan 2022, and is gradually opening up borders to tourists and foreign labour.
- Sanli Environmental's net profit, however, is likely to be lower in 2H22 due to cut in government grant.
Maintain BUY and target price of S$0.249.
- Current valuation of Sanli Environmental is undemanding at FY22E and FY23E EV/EBITDA of 3.2x and 1.6x respectively. Our BUY call is built on the followings:
- strong orders on hand, which rose by 2.1% to S$336m, that lasts till year 2026;
- net cash holdings of S$10.7m, or S$0.04 per share; and
- potential operating leverage that will bring about a recovery in gross margin to pre-COVID’s level of above 14%.
- Unlike other construction peers, Sanli Environmental faces lower risks of collection, as its contracts are secured with the Public Utilities Board. Competition in the specialized water treatment sector is also less intense compared with building and civil construction work.
PUB’s DTSS2 project pipeline.
- In Oct 21, PUB awarded a S$200.7m contract to Koh Brothers Building and Civil Engineering Contractor (Pte) Ltd to install a ceramic membrane bioreactor facility at Tuas Water Reclamation Plant to treat industrial used water. This is the first of 2 Industrial Liquids Modules (ILMs) to be installed, the tender for the second ILM is expected to be called soon. The Tuas Plant is part of PUB’s S$6.5bn DTSS2 project to reclaim and recycle water scheduled for completion in 2025.
- See
Peggy Mak
SAC Capital Research
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https://www.saccapital.com.sg/
2021-11-08
SGX Stock
Analyst Report
0.249
SAME
0.249
