United Envirotech Ltd (UEL) reported its 1QFY16 results last Friday, with revenue climbing 26% YoY (+37% QoQ) to S$83.8m; this mainly driven by a sharp increase in treatment revenue to S$36.0m (+76% YoY). Although reported net profit plunged by 85% YoY (-56% QoQ), we note that it was largely due to a one-off expense related to the offer by CKM (Cayman) Company of S$6.5m.

Excluding this item as well as the large one-off gain of S$14.2m in 1QFY15, we estimate that core earnings would have come in around S$9.8m (+18% YoY and 30% QoQ). Nevertheless, as first quarter revenue and core earnings only met 18% and 17% of our full-year estimates respectively, we deem these results to be just decent.

We will be speaking with management later to get more updates on its strategy as well as intentions on how to utilize its large cash hoard of S$414m. For now, we maintain our HOLD rating on the stock but place our S$1.74 fair value (based on 28x FY16F EPS) under review. Key risk would be potential share placements to increase the free float (currently around 12.3%).

Source: OCBC Research - 3 Aug 2015