Inks industrial project in Jiangsu
United Envirotech Ltd (UEL) has recently inked an agreement worth RMB200m (S$40m) with the local government of Siyang County, Jiangsu Province, China for TOT (Transfer-Operate-Transfer) and BOT (Built-Operate-Transfer) projects in an industrial park for the textile industry. For the TOT deal (worth RMB70m), UEL will acquire the 30- year concession rights to operate a textile and mixed industrial wastewater treatment plant with 40k m3/day capacity (Phase 1 will be operational by Jun 2013) and add another 80k m3/day capacity at a later stage (Phase 2). For the BOT project (worth RMB130m for Phase 1), UEL will use its MBR (Membrane Bio-reactor) technology to treat and recycle 60k m3/day of textile industrial wastewater; it will also construct and operate a 50k m3/day industrial water supply plant.
Financing via bank borrowing and internal funds
Management intends to finance its latest investment using proceeds from the previous convertible bond issue to KRR and bank financing. Based on its usual 40% equity/60% debt financing model, UEL would need around S$5.6m for Phase 1 of the TOT project, which should not be an issue as it is currently sitting on ~S$63.2m of cash (as at 31 Dec 2012). UEL would need around S$26m for the BOT project; but the financing needs are likely to be staggered as payout will be based on completion. In addition, KKR will be injecting another US$40m into the company following the successful placement of 98.5m new shares at S$0.50 each. KKR now has a direct interest of 45.2% on a fully diluted basis (assuming full conversion of US$113.8m of convertible bonds into shares at S$0.45 each).
Maintain BUY with new S$0.90 fair value
In light of the latest investment, we bump up our FY14 estimates for revenue by 1.5% and earnings by 4.9%; this in turn raises our fair value from S$0.88 to S$0.90, still based on 13x FY14F EPS. Maintain BUY.
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