SINGAPORE (March 2): DBS Research has upgraded CITIC Envirotech to “buy” with 92 cents target price as it expects the faster pace of deal execution to lead to stronger earnings growth.
With the support from its two SOE shareholders, CITIC Envirotech should also be able to win more deals. Coupled with its leading membrane technology, the group is also well poised to grab more market share in the water sector.
“We are optimistic that CITIC Envirotech’s deal flow will continue to grow. With a stronger order backlog, we expect construction progress to accelerate going forward,” says analyst Patricia Yeung in a Thursday report.
In FY16, CITIC Envirotech’s net profit doubled to $99.3 million, 20% above DBS’s estimate. The major variance was the strong profitability from engineering with segmental margin surging from 16.8% to 27%.
(See also: CITIC Envirotech full year earnings double to $99.3 mil on higher revenue)
Total turnover jumped 62% to $544.6 million, led by an increase of 156% and 23% in engineering and treatment revenue respectively. However, membrane sales dropped 22% due to the completion of Chengdu Xingrong project.
For the 12 months to Dec, CITIC Envirotech also clinched new projects worth RMB 4 billion ($820 million), compared with RMB 3 billion in 2015. Treatment margin declined by 4 ppts to 45% while membrane margin fell by 14 ppts to 35%. A final DPS of 0.75 cents was much higher than 2015’s 0.18 cents. A special DPS of 0.25 cents was also a nice surprise.
CITIC Envirotech also achieved some key milestones in FY16. Not only did it won its first river restoration project in Jiangsu, it also clinched its first project in hazardous waste treatment and the first circular economy Public-Private-Partnership project in an industrial park. All of them in strategic areas where the government would like to focus to combat the water pollution issue.
Shares of CITIC Envirotech are up 3 cents at 80 cents.
