Citic Envirotech Ltd (CEL) ended the Dec quarter on a pretty strong note, with revenue +3.4% YoY and +69.3% QoQ at S$120.0m, likely boosted by strong EPC contribution of S$48.6m and also membrane sales of SS$33.6m. We estimate that underlying net profit probably jumped 87.5% YoY and 69.0% QoQ to S$23.5m.

However, owing to a soft start, CEL posted revenue of S$274.8m for 2015 (9M ended 31 Dec 2015), down 4.5% YoY, and a reported net profit of S$40.8m, down 21.2%; but core earnings would have come in around S$47m. CEL declared a final dividend of 0.36 S cent/share, versus 0.5 S cent a year ago.

Going forward, management believes that the outlook for the Chinese water treatment sector, especially the industrial segment, continues to be positive, with more opportunities arising from stricter government policies.

CEL is particularly hopeful that the upcoming 13th 5-Year Plan (due out in Mar 2016) will see substantial investment in the environmental sector and bring about more Public-Private Partnerships projects. We will be speaking with management later to get more clarity. For now, we have a HOLD on the stock with a S$1.40 fair value.

Source: OCBC Research - 23 Feb 2016