SINGAPORE (July 26): UOB KayHian expects a “fantastic” 2H17 for CITIC Envirotech (CEL) as the water recycler remains on track to meet its new contract wins target of $1 billion for 2017.
See: CITIC Envirotech 2Q earnings fall 7.8% to $21 mil on lower revenue
In a Wednesday report for retail investors, analyst Edison Chen says CEL’s 2Q17 results came largely in line with expectations although revenue dipped 4% y-o-y due to the timing in revenue recognition. Management has also guided demand remains healthy and expansion is on track.
“We expect revenue to pick up in 2H17. 2Q17 membrane sales came in at US$9 million. Treatment revenue was up 4.9% y-o-y to US$46.8 million while engineering revenue was flat at US$78.6 million,” says Chen.
Management has also clarified its intention to follow Chinese state-owned enterprise (SOE) reforms on dividend payouts. The Chinese government now requires SOEs to return 30% of their earnings to the state in order to lower capital misallocation, unless the SOE can justify the use of the capital for other purposes.
“As such, we increase our dividend payout assumption for CEL to 30%,” adds Chen.
Driven by the Chinese government’s commitment towards environmental conservation, demand for industrial wastewater treatment remains strong, Chen says he won’t be surprised if CEL exceeds its target of $1 billion in new contract wins for this year.
“Maintain ‘buy’ and $1.10 DCF-based target price,” says Chen.
Shares in CITIC Envirotech are trading at 76 cents.
