SINGAPORE (Nov 7): UOB KayHian is reiterating its “buy” call on CITIC Envirotech with a target price of $1.10 now that the group has delivered on its target to win $1 billion worth of projects, hitting about $1.5 billion.
Together with the stellar 3Q17 results, UOB believes this is a testament of CITIC Envirotech’s ability to win more projects in China -- which is demanding higher water quality standards -- and executing them successfully.
“We believe the street is too conservative on CITIC Envirotech’s ability to win projects and achieve profits,” says analyst Edison Chen who thinks consensus earnings estimates of the group as “conservative”, “We reiterate our confidence in CITIC Envirotech delivering profit growth and hitting our forecast for 2H17.”
In 3Q17, CITIC Envirotech delivered stellar results with net profit surging 154.3% y-o-y to $61 million and 9M17 net profit of US$96.8 million accounting for 71.6% of UOB’s full-year forecast.
Topline also jumped 99.8% y-o-y, mainly due to the increase in engineering sales from $83 million to $226 million. Growth in the recurring water treatment business continued with revenue increasing 12.1% y-o-y to $44.6 million.
While growth from recurring water treatment is lower than that from engineering, Chen notes the time lag between project engineering’s start and completion. As such, Chen believes that this year’s growth in the engineering segment will lead to a huge jump in recurring water treatment profits next year.
Shares in CITIC Envirotech are trading at 76 cents or nearly 11 times FY18 earnings.
