Establishes US$300m MTN programme
United Envirotech Ltd (UEL) has recently announced the establishment of a US$300m MTN (medium-term note) programme, where it may from time to time issue medium-term notes in any currencies including S$, US$ and CNY to refinance existing borrowings, make investments and/or acquisitions, and general working capital and corporate purposes. It has also made an application to the SGX-ST for permission to deal in and quotation of any notes on the exchange (as and when these notes are issued).
Getting ready for more investments
According to management, the main rationale for the MTN programme is to get ready its funding to cater for the still-buoyant waste-water treatment industry in China. This as it continues to see growing demand for membrane-based water and waste-water treatment services, driven by stricter discharge limits imposed by the Chinese government and the shortage of water supply in various parts of the mainland. Currently, it is actively seek out suitable engineering and investment projects; but in the longer run, UEL intends to continue expanding its stable and recurring treatment income.
Financial muscle does matter
As the water treatment business is pretty capital intensive, UEL has already moved to raise funds over the past year or so. After its convertible bond issue and share placement to KKR, the company has about S$88m of un-utilized proceeds. Based on its usual 40% equity/60% debt policy, management believes it can comfortably finance up to S$220m worth of projects. And with the MTN programme, UEL will have access to another source of funds that it can tap upon should the need arise.
Project wins will act as catalyst
Since we had recently revised our estimates after its FY13 results, we opt not to change anything for now. Hence our fair value remains unchanged at S$1.03 (still based on 13x FY14F EPS). But we do see potential catalyst coming from project wins. Maintain BUY.
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