MARKET PULSE: United Environtech, Yangzijiang (6 Sep 2012)

Stock Name: UtdEnvirotech
Company Name: UNITED ENVIROTECH LTD

Research House: OCBC

Price Call: BUY

Target Price: 0.50

Stock Name: Yangzijiang
Company Name: YANGZIJIANG SHIPBLDG HLDGS LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.03

MARKET PULSE: United Environtech, Yangzijiang

6 Sep 2012

KEY IDEA United Envirotech: More inroads into Shandong United Envirotech Limited (UEL) has just signed a new agreement for a 30-year 20k m3/day BOT industrial waste-water project in Xintai City, Shandong, for S$20m, with construction to start immediately and complete within 15 months. We also got an update on the upgrading works of three industrial waste-water plants in Changyi City, Shandong, where UEL expects the works to complete by end-2012; existing tariffs to also improve once higher discharge standard is reached. In light of the latest contract win and potentially more contract wins in the pipeline (we estimate that UEL has the financial capacity to finance up to S$245m worth of projects), we are bumping up our FY13 revenue forecast by 13% and earnings by 27%. Applying the same 13.5x valuation peg to FY13F EPS, our fair value improves from S$0.40 to S$0.50. Maintain BUY. (Carey Wong) MORE REPORTS Yangzijiang Shipbuilding: Difficult environment spurs new initiatives According to newswires and shipbrokers, Yangzijiang Shipbuilding (YZJ) has secured an order for the construction of four 82,000DWT bulk carriers from Hong Kong-based Everbright Metal. At a price tag of US$26m/unit, these vessel orders are close to newbuild prices in Aug published by RS Platou. We estimate that YZJ has secured new orders worth about US$400m YTD, underscoring a slow year in terms of order flow. In our view, the greatly reduced new order flow for traditional vessels that Chinese yards have been reliant on will only accelerate the transformation of the Chinese shipbuilding industry, and yards that have the balance sheet and resources are likely to emerge stronger if they persevere in the yard transformation process. In the medium term, however, the outlook for Chinese yards remains dim. We have lowered our FY13 gross profit margin assumptions for YZJ's shipyard operations from 25.8% to 24.2% as vessel values have been trending lower. As such our fair value estimate slips from S$1.08 to S$1.03. Maintain HOLD. (Low Pei Han)

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NEWS HEADLINES - Blue-chip stocks closed slightly higher Wednesday as investors waited for this week's ECB meeting and data on US jobs. The Dow climbed 0.1% to 13,047.48. The S&P 500 Index closed 0.1% lower at 1,403.44. - Stamford Tyres' 1Q13 net profit was S$6.81m, up 97% YoY. There was a gain of S$11.17m from the disposal of its 20%-owned China associate. - Global Logistics Properties has signed a pre-lease expansion agreement of about 74k sqm with a leading global e-commerce retailer, for its expanding fulfilment centre in GLP Park Wuqing in Tianjin, north China. - Advance SCT has received an offer to sell its 100% share stake in the loss-making Soon Sing Metal Trading Sdn Bhd (SSMT) for a consideration of S$447k, which is the book value of the net tangible assets of SSMT. - Tung Lok Restaurants announced that its subsidiaries have signed separate tenancy agreements for commercial space with Orchard Central. These agreements constitute interested party transactions.