550sinopec_demoUnited Envirotech announced on 9 October a framework agreement for a JV with a leading PRC water treatment player, Chengdu Xingrong Investment, to provide EPC services using Memstar membrane technology and products. Company photo

Excerpt from analyst's report

Maybank Kim Eng analyst: Wei Bin

United Envirotech has signed a framework agreement with Chengdu Xingrong to set up a 49:51 JV. Xingrong is a water SOE listed in China’s A-share market. It has a market cap of SGD3.5 billion and owns about 5 million tonnes/day of water-treatment capacity.

570_LinYuCheng_GeHailin“The growing market share of membrane technology for upgrading, expansion and recycling is great news for our Memstar membrane products. Some S$60 million worth of Memstar membrane products will be used for our first block of projects with Chengdu Xingrong.” - United Envirotech executive chairman, Dr Lin Yu Cheng (left).

To his left is Memstar founder and executive chairman, Dr Ge Hailin. NextInsight file photo
The JV will provide EPC services using UENV’s membrane technology and products. It will also invest in water-treatment projects in Western China.

Its first block of projects will involve the expansion and upgrading of wastewater treatment plants and recycling of treated wastewater with a combined capacity of 1m tonnes/day.

Valued at more than CNY1.5 billion (SGD 300 million), the jobs will commence immediately and are expected to be completed by end-2015.

Right way to expand, in our view: We believe strategic partnerships with local players are the right way to expand for UENV. Xingrong is one of the largest water companies with a stronghold in Western China. UENV can leverage its local presence to penetrate new markets.

Still, in view of a lack of immediate catalysts, maintain HOLD and SGD1.44 TP, at 27x FY3/15E P/E, 10% discount to peers due to its smaller recurring income base. Valuations are rich at 30.3x FY3/15E P/E. We still prefer HanKore and SIIC in the sector.

UEL_stkpx_10.14At $1.32, United Envirotech's stock price is up by more than 60% year-to-date.
Bloomberg data

Related story: MEMSTAR PTE LTD: What's next post UEL merger?

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