By Carey Wong
Wed, 11 Aug 2010, 09:04:06 SGT
United Envirotech Ltd’s (UEL) 1Q11 revenue jumped 152.8% YoY to S$22.4m, aided by higher engineering income from the Guangzhou EPC project (already officially completed). And thanks to the higher revenue, net profit surged 284.9% YoY to S$4.2m. Management remains upbeat about its prospects for the rest of FY11 and is “optimistic” that there are opportunities for new and upgrading projects to be secured, both in the municipal and industrial sectors. Given the still buoyant outlook for the water sector, both in China and regionally, we remain positive on UEL’s prospects. And as 1Q11 results are within expectations, we see no need to adjust our estimates. As such, we maintain our BUY rating and DCF-based fair value of S$0.52.
1Q11 results within expectations. United Envirotech Ltd (UEL) reported its 1Q11 results last evening. Revenue jumped 152.8% YoY to S$22.4m, aided by higher engineering income from the Guangzhou EPC project (already officially completed). But because EPC revenue tends to come with lower gross margins compared to waste treatment, overall gross margin slipped to 35.3% from 51.8% in 1Q10. Still, thanks to the higher revenue, net profit surged 284.9% YoY to S$4.2m. On a sequential basis, though revenue slipped 26.1%, it still met 22.2% of our full-year estimate; net profit fell 34.9%, but still met 23.6% of our FY11 forecast. We are not overly concerned as the first quarter tends to be the seasonally weaker period.
Outlook remains upbeat. Indeed, management remains upbeat about its prospects for the rest of FY11, buoyed by the improving overall economic conditions; and also believes that the stricter discharge limits imposed by the Chinese government will compound the demand for membrane-based water and waste-water treatment services. As such, UEL is “optimistic” that there are opportunities for new and upgrading projects to be secured, both in the municipal and industrial sectors. Currently, we estimate that UEL is sitting on an EPC order book of around S$60-70m, which it will deliver over the next 15 months. And as its long-term growth strategy, UEL will actively seek suitable TOT/BOT/BOO projects in China to build or acquire to strengthen its recurring income base. Last but not least, UEL also intends to build on its O&M services to further boost its recurring income stream, both in China and beyond.
TDR listing on the horizon. And on the topic of venturing overseas, UEL is seeking a TDR listing in Taiwan; besides providing itself with an additional platform for fund raising, management believes that the TDR will help raise its profile (management notes that there is no similar listed water company there) and allow it to pursue projects in Taiwan. In any case, we do not expect funding to be an issue for UEL, given that it has recently secured RMB3b of project financing (S$600m) for three years from China Merchants Bank.
Maintain BUY with S$0.52 fair value. Given the still buoyant outlook for the water sector, both in China and regionally, we remain positive on UEL’s prospects. And as 1Q11 results are within expectations, we see no need to adjust our estimates. As such, we maintain our BUY rating and DCF-based fair value of S$0.52.
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