MOYA HOLDINGS: "Substantially undervalued," says RHB

Excerpts from RHB Research report

Analyst: Jarick Seet

Moya managing director Irwan Dinata at a recent 1H2017 results briefing. Photo: Leong Chan TeikMoya is the only listed proxy to Indonesia’s water treatment sector, and has become the largest water treatment player in terms of capacity after its acquisition of Acuatico. With its SGD60m cash hoard, we believe it could continue with its acquisition spree to further consolidate Indonesia’s private water treatment sector. With rapid forecasted growth and further cost savings initiatives, we believe Moya is substantially undervalued at current levels. Initiate coverage with BUY and DCF-derived TP of SGD0.17 (44% upside), implying FY18F P/E of 13.8x.

Sole listed and largest water treatment player in Indonesia. With the acquisition of Acuatico Pte Ltd (Acuatico), Moya Holdings Asia (Moya) is now the largest water treatment player in terms of capacity, with 15,000 litres/second (lps) capacity by 2018.

This also gives it an advantage, especially when negotiating terms over a buyout of existing smaller players. In addition, IRRs for water projects in Indonesia are attractive, typically at c.15%, double that of a similar project in China.

More M&As could be on the way. Its latest acquisition was financed 100% via a bank loan. With more than SGD60m of cash still on its balance sheet, we think that over the near term, there could be more acquisitions in the pipeline, which would further boost its explosive growth.

Pro-clean water policies set by the local Government. The Government of Indonesia has pledged to reach the universal coverage target of 100% access to safe water and sanitation by 2019. It conforms with Law No. 17 year 2007 and Rio+20 commitment, as it is mandated in the National Medium Term Development Plan 2014-2019. Current safe drinking water access is only at 67% and improved sanitation access is at 59.71%.

"Initiate coverage with BUY and DCF-derived TP of SGD0.17. With rapid projected growth, favourable pro-clean water policies, potential M&As, cost savings initiatives and synergies, we believe Moya is undervalued. Initiate coverage with BUY and TP of SGD0.17, implying FY18F P/E of 13.8x." -- Jarick Seet (photo) Analyst, RHB Research

Projected FY16-18F NPAT CAGR of 243%. With profits from the Acuatico acquisition, coupled with Moya’s existing organic capacity expansion, we think that Moya would likely enjoy a substantial boom in its NPAT, with a projected FY16-18F NPAT CAGR of 243%.

This is exclusive of any potential M&A deals in the pipeline, which would further boost its NPAT if executed.

Non-revenue water (NRW) – a key growth driver. With only 53% of Acuatico’s water reaching the masses, the remaining 47% of leakages can actually boost NPAT substantially if more of this NRW can be recovered and sold. This can be done through refurbishing or replacing rusty and leaking pipes as well as other methods.

Management will initiate a plan to reduce its NRW by 50% gradually by 2023, which would be very beneficial for Moya as a reduction in NRW would boost its topline and margins extensively given that the majority of gross profit from incremental sales of NRW would likely flow down to PBT directly, and support the renewal of its concessions.

Full report here.