OSK-DMG starts coverage of SIIC Environment with 'neutral' rating, 18-c target
Analyst: Sarah Wong
SIIC Environment now has a market cap of S$1.6 billion and a trailing PE of 33X. Chart: FT.comSIIC is a top-tier, state-backed environmental player in China with a portfolio of 42 wastewater treatment projects and two waste incineration projects. With funds from a recent placement, it is set to embark on growth via expansion and M&As.
However, its share price surge has rendered valuations less attractive.
We initiate coverage with a NEUTRAL and SGD0.180 TP, pegged to 30x FY14F P/E.
Key points include:
1) Strong parentage and strategic investors with vast resources and network a key differentiator.
Being 46.7%- owned by a China state-owned enterprise (SOE), ie Hong Kong-listed Shanghai Industrial (363 HK, NR), SIIC Environment Holdings (SIIC) is well-poised to capitalise on attractive opportunities in China’s environment space.
A 7.7% stake by strategic investor China Investment Corp (CIC) also adds to its appeal;
2) ~30% earnings CAGR until FY15F buoyed by capacity expansion and M&As.
SIIC aims to increase water treatment capacity by 1m tonnes/day annually, which will bring its total design capacity to 6.5m tonnes/day by FY15F (from 4.5m).
These targets will boost SIIC’s recurring revenue from water treatment and water supply to CNY1.1bn in FY15F, nearly doubling from FY12’s CNY532.9m;
3) Valuations appear fair; initiate coverage with a NEUTRAL and TP of SGD0.180.
SIIC is currently trading at a 32x forward P/E vs the peer average of a 30x P/E.
As its share price has risen rapidly in the past few months, valuations appear less attractive now despite its potential earnings growth.
As near-term upside could be limited, we initiate coverage with a NEUTRAL and a TP of SGD0.180. Given that our model currently takes into account growth resulting from future M&As and expansion, risks to our call would be stronger-than-expected growth from M&As and expansion plans.
Recent story: Initiation report: Buy 'rising star' SIIC Enviroment, says DBS Vickers
CIMB maintains 'reduce' rating on Yongnam Holdings Analyst: Gary Ng  Yongnam's office in Tuas. NextInsight file photo1H14 is expected to be challenging as the group's performance will be dependent on the rate and extent of its success in securing new contracts, most of which would start contributing materially from the 2H14, if it wins any that is. As Yongnam attempts to catch up on new awards, we are also worried that any new contracts will come at the expense of margins. In short, we still find no justification for the stock to trade at its current value. Recent story: YONGNAM: "To me, Price drop = buying opportunity!" |
