Fair value S$0.50
52-wk range (S$) 0.275 - 0.435
Buying two municipal treatment plants in Fujian
United Envirotech Limited (UEL) has recently entered into a sales and purchase agreement to acquire an 80% stake in Fujian Liyang Envirogroup Co and Shaxian Lanfang Water Co for RMB116m (or S$23.2m). The move will allow UEL to own and operate two municipal waste-water treatment plants in Fuqing and Shaxian City, with a combined capacity of 150k m3/day; it is also its first investment in Fujian Province. And with the completion of Phase 2 construction of Shaxian Waste-water Treatment Plant, the total capacity will increase to 180k m3/day.
Acquiring two industrial treatment plants in Changyi
Separately, UEL had earlier entered into a sales and purchase
agreement to acquire a water supply plant and a waste-water treatment plant serving the textile companies located in industrial parks in Changyi City, Shandong Province. UEL will set up a 70%- owned JV with the current plant owners. UEL will invest a total of RMB165m (S$33m), and like the Fujian deal, UEL will fund it using 60% project financing and 40% from the proceeds raised from the KKR convertible bond issue.
Impact likely felt in next FY
Based on our estimations, the four plants could bring in combined revenue of RMB26m/quarter, with EBITDA margins likely between 65% and 70%. But according to management, any revenue contribution would only come in once the transfers are done, which should take place within the next three months. Hence we only expect the impact to be felt from the next FY. As such, we are keeping our FY12 estimates unchanged; instead, we bump up our FY13 revenue forecast by 8.6% and earnings by 8.8%.
Maintain BUY with S$0.50 fair value
However, our DCF-based fair value remains unchanged at S$0.50. Maintain BUY as management intends to acquire more municipal projects to further increase its China footprint and recurring revenue.
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