MARKET PULSE: United Envirotech, CSE Global & ST Eng (10 April 2012)

Stock Name: UtdEnvirotech
Company Name: UNITED ENVIROTECH LTD

Research House: OCBC

Price Call: BUY

Target Price: 0.50

Stock Name: ST Engg
Company Name: SINGAPORE TECH ENGINEERING LTD

Research House: OCBC

Price Call: BUY

Target Price: 3.32

MARKET PULSE: United Envirotech, CSE Global & ST Eng

10 April 2012

KEY IDEA United Envirotech: Expanding footprint in China United Envirotech Limited (UEL) continues to expand its footprint in China. It has recently entered into a sales and purchase agreement to acquire an 80% stake in two municipal waste-water treatment plants in Fujian Province for RMB116m (or S$23.2m). Separately, UEL had earlier entered into a sales and purchase agreement to acquire a water supply plant and a waste-water treatment plant serving the textile companies located in industrial parks in Changyi City, Shandong Province for RMB165m (S$33m). UEL intends to fund both deals using 60% project financing and the balance from the proceeds from the KKR convertible bond issue. Based on our estimations, the four plants could bring in combined revenue of RMB26m/quarter; but any impact is likely to be felt only from FY13. As such, we are keeping our FY12 estimates unchanged; instead, we bump up our FY13 revenue forecast by 8.6% and earnings by 8.8%. However, our DCF-based fair value remains unchanged at S$0.50. Maintain BUY as management intends to acquire more municipal projects to further increase its China footprint and recurring revenue. (Carey Wong) MORE REPORTS CSE Global: Sale of 31% stake in eBworx Last week, CSE Global (CSE) accepted an offer from Hitachi Ltd for all its 59,789,000 shares (30.94% stake) in Malaysia-listed financial solutions provider eBworx Berhad (eBworx). This follows a voluntary general offer from Hitachi's bankers, in Mar 12, to acquire all the outstanding ordinary shares for a cash offer of M$0.90. If Hitachi's acquisition of eBworx goes according to plan, CSE would receive about S$21.5m in cash in exchange for its stake in eBworx. The proposed transaction is not expected to have any material impact on CSE's consolidated net tangible assets per share or earnings per share for FY12. As we believe that there are little synergies between the two companies, the sale should help CSE unlock shareholder value and redeploy capital to its core businesses. Pending further clarity on the situation, we maintain our HOLD rating with S$0.80 fair value estimate. (Chia Jiunyang) ST Engineering: Marine arm secured S$880m contract ST Engineering (STE) announced that its marine arm was awarded a contract worth €534.8m (~S$880m) to design and build four patrol vessels for the Royal Navy of Oman. ST Marine will build four 75-metre patrol vessels based on its proprietary Fearless Class design. The project will commence immediately with deliveries scheduled from 2Q15 to 3Q16. This contract is not expected to have any material impact on the financial performance of STE for the current financial year. At the end of FY11, STE reported a robust order book of S$12.3b. We maintain our BUY rating and fair value estimate of S$3.32/share on STE. (Eric Teo)

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NEWS HEADLINES - US stocks fell, with the S&P 500 Index losing 1.1%, following the disappointing new jobs data released on Friday. Data released yesterday also showed a higher-than-expected jump in inflation in China. - DBS must sell shares of Danamon back to the public if it owns more than 80% of the lender after a takeover, according to the Indonesia Stock Exchange. - CapitaRetail China Trust has established a S$500m Multicurrency Medium Term Note programme. - Global Logistic Properties has signed four new leasing agreements totalling 68,600 sqm in East China. - Transcu Group, which is in the midst of a proposed restructuring, may issue securities or quasi-securities to alleviate its immediate cash-flow problems.