SINGAPORE (Feb 9): RHB recommends investors accumulate water company Moya after the recent share price correction.
With further cost savings, volume expansion, the recovery of its non-revenue water (NRW) providing strong organic growth, as well as additional acquisitions in the pipeline, RHB says the outlook is bright for Moya.
"We recommend investors to accumulate Moya after the recent share price correction. Thus, we maintain our 'buy' call, with an unchanged DCF-backed target price of 17 cents," says RHB analyst Jarick Seet in a Friday report.
Seet recently visited Moya’s water treatment plants in Jakarta, which it acquired in 2017, and came away positive on its outlook.
Moya is now Indonesia’s largest water treatment operator. This means it would see greater cost savings due to its improved position in negotiating on piping, chemicals and manpower.
"We also expect Moya to acquire more entities in the near term, as it aims to achieve 20,000 litres per second in capacity this year," says Seet, adding that restructuring and potential extension of its concessions could also significantly boost to its prospects.
At present, only 22% of Indonesia’s population have access to clean piped water, and many still rely on higher-cost water sources like jerry cans, which cost IDR1,000-1,500 (9.8-14.7 cents) for a 20-litre unit. In contrast, piped water costs just IDR7 per litre.
Indonesia’s largest water operators are in the midst of talks with the Government, on restructuring the expiring agreements. However, Seet thinks any agreements made on restructuring would likely include an extension for the existing expiring concessions.
As of 3Q17, Moya still has a warchest of $100 million – from which it may likely pare down its debts or use to acquire more private players or competitors. Management highlighted that Moya aims to increase its water processing capacity to over 20,000 litres per second by the end of 2018. Its current capacity is about 13,000 litres per second.
Seet believes Moya is ready to acquire more private water operators in Indonesia given that management has fully consolidated Acuatico's operations and streamlined most of its processes to integrate with its own existing operations.
As at 3.36pm, shares in Moya are down 0.2 cent at 8.9 cents or 9 times FY19 recurring earnings.
