SINGAPORE (Feb 17): RHB is maintaining its "buy" call for SIIC Environment as it expects the group to register a strong FY17, backed by high volumes of construction activities and full-year contribution from newly acquired Longjiang Group.
"We reduce our target price to 96 cents from $1.13, to account for the dilution after the share placement," says analyst Juliana Cai in a Friday report who expects its dual-listing in Hong Kong to take place after the placement of shares to its parent is completed.
On Thursday, the wastewater treatment company announced a proposed placement of 350 million shares to its parent company, Shanghai Industrial. The placement price of 63 cents represents a 9% premium from the current share price.
"We think this placement signals Shanghai Industrial's confidence in SIIC Environment Holdings' outlook," adds Cai.
Management is maintaining its target to grow 1-1.5 million tonnes of treatment capacity in FY17. However, the bulk of management's time is to be focused on the dual-listing of the stock. Thus, any major acquisition would likely only take place in 4Q17.
Meantime, Cai expects SIIC Environment's construction revenue for FY17 to remain strong due to high volumes across its subsidiaries. Meanwhile, Longjiang projects are likely to see upward price adjustments when its plants are upgraded over FY17-18.
"Our target price implies 20x FY17F P/E, in line with the regional peer average. Key catalysts include dual-listing in Hong Kong and faster-than-expected acquisitions," adds Cai.
Shares of SIIC Environment are up 1 cent at 59 cents.