SINGAPORE (Nov 10): RHB Research is downgrading its call on SIIC Environment Holdings to “neutral” from “buy” with a lower target price of 54 cents from 82 cents previously.
This comes after the water treatment and environmental protection company reported what it deems a disappointing set of 3Q results on Thursday.
See: SIIC Environment sees 3Q earnings rise 17.2% to $22.6 mil on higher sales across all businesses
In a Friday report, RHB’s research team notes how the stock is trading at 1.3SD below its three-year mean, which it sees as justified given the group’s lacklustre financial performance in the year to date.
RHB particularly highlights how group profit and net profit has dropped q-o-q in spite of growth in revenue over the same period – and that gross profit margin (GPM), estimated to have declined 7 percentage points q-o-q to 41%, was at the lowest level in the last two years.
“We find it puzzling that the stable wastewater treatment (WWT) business could have such large swings in operating GPM and tune down our GPM forecasts,” notes the team.
In spite of SIIC’s acquisition being on track to delivering its 1-1.5m tonnes/day per annum capacity addition target, RHB believes the group’s high gearing, which is projected to grow 101% without further placement deals, and tax bracket projected to remain at the 25-27% range, are to erode profitability.
“WWT stocks are trading at 11 times 2018F forward P/E on average in both the Hong Kong and Singapore markets, indicating similar appetites among investors across the two markets for the sector. That said, we do not think the dual-listing could trigger a sharp re-rating of SIIC’s Singapore-listed shares, but may improve its liquidity to a certain extent,” concludes RHB.
As at 3:39pm, shares in SIIC are trading 1 cent higher at 52 cents, or 0.78 times FY18 book.
