CITIC Envirotech Ltd (CEL) reported 2Q16 revenue of S$140.0m, up 67% YoY, boosted by revenue increases in all three business segments; engineering surged 105%, membrane jumped 78%, while treatment climbed 24%. Although gross margin slipped slightly from 53% in 2Q15 to 48% in 2Q16, CEL was able to post a 586% surge in NPAT to S$22.8m; excluding the exceptional item in 2Q15, core earnings would have risen 132%.

For 1H16, total revenue came up to S$239.4m, +65%, meeting 56% of our full-year forecast, while NPAT added 221% to S$34.9m, or about 49% of our FY16 estimate.

Going forward, management remains upbeat about the water treatment industry in China, buoyed by the government’s continued push towards stricter environmental protection policies; besides the water and wastewater sector, CEL is also encouraged by the growing focus on sludge treatment.

However, due to the company’s low trading liquidity and a reshuffling of internal resources, we are CEASING COVERAGE on the stock. But we note that the company has performed exceptionally well under our coverage – its share price has surged 5x since we initiated on it in Jun 2010.

Source: OCBC Research - 28 Jul 2016