S$0.50 fair value
3Q earnings hit by higher interest cost
United Envirotech Limited (UEL) recently reported its 3QFY12 results. Revenue saw a 57.5% YoY jump to S$20.1m, largely buoyed by higher engineering income, which climbed 77.5% to S$14.2m for the quarter. Treatment income increased 22.9% to S$5.9m. But reported net profit saw a 53.8% plunge to S$1.9m, mainly due to higher interest cost arising from the recent issuance of US$113.8m worth of convertible bonds. And if we exclude exceptionals, the core net profit fall was around 28.1%. For 9MFY12, revenue climbed 13.8% to S$66.2m, meeting 74.3% of our full-year forecast, while net profit declined 36.4% to S$9.1m, meeting just 57.5% of our original FY12 forecast.
Maintains optimistic outlook
Going forward, UEL remains fairly upbeat about its prospects in China, as it believes that there is still a growing demand for membranebased water and wastewater treatment services, driven by the stricter discharge limits imposed by the Chinese government as well as the water supply shortage in various parts of the Mainland. As part of its long-term strategy, UEL is still actively seeking out suitable TOT/BOT/BOO projects for investment; this to expand its stable and recurring treatment income. In the last quarter, treatment income made up around 29% of revenue.
Paring our earnings estimates
Company continues to deliver on the revenue front, supported by an estimated S$40m order book (which is likely to be delivered over the next three quarters). However, we need to pare our FY12 earnings estimates by 20.2% and FY13 by 27.1% to account for the higherthan- expected interest expense for the convertible bond.
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Maintain BUY with S$0.50 fair value
Nevertheless, margin improvements will bump up our DCF-based fair value from S$0.42 to S$0.50. Maintain BUY as we continue to remain upbeat about the waste-water prospects in China.
>>> United Envirotech 50/200MA + Volume + MACD Chart
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