By Carey Wong 

United Envirotech Ltd (UEL) has just secured a RMB100m BOT (Build, Operate, Transfer) contract in Shandong Province, China the 30k m3/day underground waste-water treatment plant is a follow-up to its earlier 100k m3/day drinking water project secured in Yantai last year. Despite the latest contract win, we note that it will only meet around 20% of our new contract wins expected this year hence, we opt to leave our forecasts unchanged for now. Instead, we could see a large dilution from the move to issue shares to buy over the membrane operations of Memstar Technology Ltd. As such, we are also more inclined to maintain our HOLD rating, although the current upside to our unchanged S$0.975 fair value (13x FY14F) is around 8%.

New RMB100m BOT project in Shandong
United Envirotech Ltd (UEL) has just secured a RMB100m BOT (Build, Operate, Transfer) contract in Shandong Province, China this to construct and operate a 30k m3/day municipal waste-water treatment plant. Scheduled to be completed by 3QCY14, it will use the company?s membrane bioreactor (MBR) technology and will be built underground, just like the 100k m3/day one it built in Guangzhou City in 2010. 

Funding is not an issue
As before, UEL plans to fund the project using the proceeds from the CB issue and share placement to KKR and bank financing. Based on its usual 40% equity/60% debt split, UEL should have no issues with coming up with S$8m of cash, given its cash balance of S$25.9m as of end Jun 2013. Recall that UEL can also tap on the recently launched US$300m MTN programme. 

Still positive on Shandong region
Noting that the latest project (which will reach 80k m3/day upon completion of Phase 2) is a follow-up of the 100k m3/day membrane-based drinking water project it secured in Yantai last year, management remains upbeat about its prospect there and intends to continue to secure more similar projects in Shandong and other parts of China. 

Maintain HOLD
Despite the latest contract win, we note that it will only meet around 20% of our new contract wins expected this year hence, we opt to leave our forecasts unchanged for now. Separately, UEL has entered into an agreement to acquire 100% of Memstar Technology Ltd?s (MTL) membrane operations for S$293.4m ? paying S$73.354m in cash and issuing 200.055m UEL shares at S$1.10 each. While the move is positive in the longer term, the stock could see a large dilution on the completion of that deal. As such, we are also more inclined to maintain our  HOLD  rating, although the current upside to our unchanged S$0.975 fair value (13x FY14F) is around 8%. 

...last: $0.89...

reflect lower Treatment margin and EPC revenues. Maintain

HOLD rating, nudged down TP to S$0.90 (Prev S$ 0.97).

Source DBS