SINGAPORE (June 20): UOB KayHian is maintaining its “buy” on CITIC Envirotech (CEL) given there is no chance of the stock being caught in the crossfire of the escalating US-China trade war.
While China’s export-oriented firms may suffer, CEL has a defensive environmental business and government contracts with new order wins pushing to RMB2.7 billion ($565.5 million) year-to-date.
US President Trump said last Friday that the US will impose tariffs of US$50 billion ($67.8 billion) on Chinese imports, with the first wave of duties to cover US$34 billion of goods starting July 6.
China countered swiftly with a list of goods slated for tariffs and moved to null previous negotiations, ignoring Trump’s threat to raise the total tariff by another US$100 billion if China retaliates.
Nevertheless, defensive firms with government contracts like CEL should be sheltered, says lead analyst Edison Chen in a Wednesday report.
With CEL’s latest RMB680 million order wins for two industrial hazardous waste treatment projects, its order wins have reached a high of RMB2.7 billion ytd.
The latest win also recognises CEL’s capability and technologies beyond waterwaste treatment and in the hazardous waste management sector.
“In line with China’s environmental focus, we believe CEL’s order win momentum will continue,” say Chen, adding that financing for all projects has been secured, according to management.
CEL recently conducted its first share buyback of the year, showing investors that the state-owned enterprise will not hesitate to buy back shares if price levels are too low.
CEL’s future remains bright amid a favourable macro backdrop as Chinese President Xi reaffirmed China’s war on pollution.
“We believe 2018 should be a year of stellar results for CEL,” adds Chen.
CEL’s current low PE of 8.2x 2018F earnings and attractive dividend yield of 3.7% makes it attractive to investors who wish to find a safe China proxy amid trade war uncertainties.
“Our target price is $1.06, implying 11.6x 2019 earnings, mirroring Singapore and Hong Kong peers’ average of 11.2x,” adds the analyst.
The stock remains the cheapest on 2018 valuations vs Singapore peers such as SIIC and China Everbright Water with an attractive 2018 yield of about 4%.
As at 10.50am, shares in CITIC Envirotech are trading 0.5 cent lower at 56 cents.
