OCBC maintains ‘Buy’ call on United Envirotech
Analyst: Carey Wong
OCBC INVESTMENT Research (OIR) has maintained its BUY call on United Envirotech Ltd (UEL) with an unchanged fair value of S$0.53 after it announced a convertible bond issue of US$113.8m to KKR China Water Investment Holdings (KKRCWI).
OIR is positive on the investment by KKRCWI, as UEL can tap on KKR's global network, strong operational capabilities and extensive local knowledge.
It believes that the latest investment by KKR will be very well received by the market and the enlarged war-chest will allow UEL to compete more favorably against the bigger players.
KKRCWI is an indirect wholly owned subsidiary of KKR Asian Fund L.P., an investment fund that focuses on industry-leading businesses in Asia. KKR is publicly traded on the New York Stock Exchange and has US$61 billion in assets under management.
The proposed issue of US$113.8m of 2.5%-coupon convertible bonds (CBs) is due in 2016, non-recallable and can be converted into new ordinary shares at S$0.45 per conversion share, or a premium of 37.3% over the 30-day average price of S$0.328. If the CBs are fully converted, 305 million new shares will be issued, translating to 38.4% of UEL's capital base on a fully diluted basis.
UEL intends to use 90% of its proceeds to fund its BOT, TOT and BOO projects and up to 10% for working capital needs.
UEL’s 1Q12 revenue contracted 7% year-on-year to S$20.8m as engineering revenue declined 17.5%, offset by a 60% increase in treatment revenue, which has better margins.
As a result, gross margins recovered to 43.5% (from 20.8% in 4Q11). UEL currently sits on cash of S$44.9m (as of end Jun), and its net gearing was 12.6%.
OIR is positive on the water industry in China and believes that UEL has the technology and track record to make further inroads into the market.
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UOBKH maintains ‘Buy’ call on World Precision Machinery
Analyst: Jonathan Koh
UOBKH has maintained its ‘Buy’ call on World Precision Machinery (WPM), with target price at S$1.15 after WPM secured new orders totaling Rmb21.5m.
Comprising of conventional, high-performance and high-tonnage precision metal stamping machines, the orders were from Jiangsu Boyu Metal Goods Pte Ltd (JSBY) and Wuhan Dingxin Electric Appliances Pte Ltd (WHDX), suppliers of sheet metal components for home appliances and consumer products.
They are key suppliers for Midea Group and TCL Group. JSBY is also manufacturer for BBQ brand.
WPM has a diversified customer base and home appliances and consumer products accounted for 34% of sales in 2010.
UOBKH is positive on WPM as demand for home appliances and consumer products is expected to increase due to China’s rapid rate of urbanization. Rural consumption of household electrical appliances is also boosted by subsidies amounting to 13%, expected to last till early 2013.
The management expects deliveries for these new orders to be completed within 2011. They will contribute positively to the group's financial performance in 2H11.
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DMG raises Lian Beng’s target price to 71.5 cents
Analysts: Selena Leong and Terence Wong
DMG has maintained its ‘Buy’ call on Lian Beng, and raised its target price to 71.5 cents (83.3% upside), based on a target P/E of 7x FY12 earnings after the leading local main construction contractor doubled its net earnings for FY2011 (May year end).
FY11 was a record year, with profit attributable to shareholders hitting S$48.2m.
DMG believes Lian Beng is set to ride on Singapore's current building boom, from both public and private projects and that its ventures in private residential and industrial developments will help boost its bottom line.
At 38 cents per share, it still trades at 3.7x FP2012 P/E - cheaper than its peers.
As at May 2011, Lian Beng has a healthy order book of S$839m (up from S$661m in Feb 11). The contracts will run till FY14, lending some visibility to its earnings.
Its cash hoard, which stands at S$149.9m, will allow it to grow its property development business.
It has also declared a total of 1.6S¢ per share as dividends (1S¢ as first and final, 0.6S¢ as special dividend), up from 0.8S¢ last year, translating into a decent dividend yield of 4.1%.
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