Citic Envirotech Limited (CEL) has recently announced the securing of two waste-water treatment projects with a total investment of RMB147m (S$32m). For the first project, UEL will set up 95%-owned JV with Xiaochang Philip Water Co to invest RMB64m for the acquisition of a 40k m3/day municipal wastewater treatment plant with a 27-year concession in Xiaochang country in Hubei.

The second project will see UEL acquiring a 10k m3/day industrial wastewater plant as the first phase and later build another 10k m3/day plant under phase two in the Baiyi Industrial Park in Zao Zhuang City, in Shandong; the total investment for this project is RMB83m and has a 30-year concession.

While the company does not expect any material impact on its FY16 NTA and EPS, we note that CEL is building its recurring income stream for the future. Although we have projected for such project wins in our model, we believe that the constant addition to its treatment portfolio will only reduce the earnings volatility but also improve the visibility.

For now, we maintain HOLD on the stock and an unchanged S$1.48 fair value (23x FY16F EPS); but down the road, we may switch to a SOTP-based valuation model once the treatment income becomes more significant.

Source: OCBC Research - 29 Mar 2016