Maybank Kim Eng maintains 22-c target price of SIIC Environment
Analyst: Wei Bin
SIIC Environment executive chairman Zhou Jun.NextInsight file photo To acquire a 25.3% stake in Longjiang Environmental
SIIC will pay CNY405m cash, pricing the asset at 23-27x normalised FY13 P/E. The transaction will be funded by internal sources, comprising proceeds from share placement in 2013 and loans from its parent Shanghai Industrial Holdings.
We are positive on the deal given its reasonable valuation and at the same time allowing SIIC to penetrate into the northeast China market.
We note that SIIC’s parent Shanghai Industrial Holdings also has an effective interest of 16.8% in Longjiang. We will not be surprised if SIIC absorbs its parent’s stake in Longjiang in the future and uses it as a platform for expansion into northeast China.
We leave our earnings forecasts unchanged and reiterate our BUY call on the stock. Our TP is maintained at SGD0.22, pegged to 30x FY15E P/E.
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UOB Kay Hian raises target price of ISOTeam to 52 cents Analyst: Loke Chunying • Maintain BUY with a slightly higher target price of S$0.52 as we roll forward our forecasts and peg it at 0.5x PEG ratio and 2015-18F CAGR of 16.1%.
Investment Highlights • Ample room for growth. While ISO has an orderbook of about S$80m, we understand that it is able to take up an additional S$70m worth of contracts, based on its current capacity. • Expanding market size, strategic partnerships and M&A to drive growth. With new residential units coming into the market and the company’s entry into the private sector, ISO’s targeted customer base is expected to continue expanding. Strategic tie-ups with developers, or partners like SKK, may also help drive growth, as ISO gains projects through partners’ networks. ISO has been securing private condominium projects through its collaboration with SKK. ISO has been the exclusive applicator of paintworks for both SKK and Nippon Paint in the public housing sector since 1998 and 2004 respectively. With a net cash position of about S$10m, ISO is also ready to drive profitability through M&As. • Lowered our 2014 earnings forecast on timing cut-off issues. We understand that certain milestones required for revenue recognition of some projects may not be reached before the cut-off period for 2014 and may hence be deferred to 1H15. As such, we are lowering our 2014 earnings forecast by 24% to S$4.8m. Despite the deferment in revenue recognition, we trim our 2015 profit forecast by 4% to S$7.6m as we incorporate a higher cost structure. ISO is trying to venture into new markets (eg private sector), as such they may have to bid more aggressively for the initial projects at the expense of margins. Additional overheads may also be incurred as ISO seeks new M&A targets. • Still good growth ahead. Even with the lower forecasts, ISO’s earnings are still projected to grow at a 2010-14 CAGR of 23%. Going forward, we expect net profit to grow at a 2015-18 CAGR of 16.1% to S$11.9m. • Our view: Since our initiation last year, ISO has outperformed the market, gaining 36.5% ytd. We continue to like ISO for its strong growth orientation and defensive business nature. As an industry leader, ISO will continue to benefit from a growing market size. With about 50% of its earnings derived from the repairs and redecoration (R&R) segment that is backed by local regulations, ISO’s business is highly defensive and recurring in nature. Recent story: ISOTeam: Buy, 51.5-C Target, Says OSK-DMG In Initiation Coverage |
