• EPC order book ~S$370m
• Eying more O&M income
• Upgrade to BUY for 15% upside potential

Wins RMB580m EPC contract

United Envirotech Ltd (UEL) has recently announced that it has won a contract worth RMB580m (S$120m) to design and build China’s largest MBR (membrane bio-reactor) waste-water treatment. This from Fujian Haixia Environmental Protection Co – a wholly-owned subsidiary of the state-owned enterprise Fuzhou Water Investment and Development Co Ltd. UEL will start construction of the 200k m3/day municipal waste-water plant that will be based in Fuzhou City, Fujian Province, immediately and aims to complete it by end 2014.

Order book continues to remain robust

Although UEL does not expect it to have any material impact on its NTA and EPS for FY14 (ending 31 Mar 2014), management notes that the latest win is its largest EPC contract to date in terms of contract value. It also adds to an already robust order book where the company has added more than RMB1b (S$210m) worth of new contract wins over the last two months. We estimate that UEL’s order book should stand around S$370m.

Still looking for more O&M income

No doubt the recent winning of EPC contracts is a testimony to the company’s technology and good execution track record, but UEL would continue to focus on investing in more water treatment plants to boost its recurring O&M income. Based on our current estimate, we believe that UEL should be able to generate close to S$100m of treatment revenue in FY15. And based on its usual 40/60 equity to debt investment strategy, we estimate that UEL has the headroom to invest in up to S$290m worth of water projects.

Upgrade to BUY with new S$1.36 FV

In view of the latest order win, we bump up our FY15F revenue forecast by 8% and earnings by 4%. Still based on an unchanged 20x FY15F EPS, our fair value inches up from S$1.30 to S$1.36. And because of the recent pullback in UEL’s share price (post-results profit-taking), we note that there is now a healthy 15% upside, and hence we upgrade our rating from Hold to BUY.

Source: OCBC Research - 6 Mar 2014