SG: MARKET PULSE: United Envirotech, Yangzijiang Shipbuilding (23 Aug 2013)

Stock Name: UtdEnvirotech
Company Name: UNITED ENVIROTECH LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.975

Stock Name: Yangzijiang
Company Name: YANGZIJIANG SHIPBLDG HLDGS LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.99

MARKET PULSE: United Envirotech, Yangzijiang Shipbuilding

23 Aug 2013

KEY IDEA United Envirotech: Secures RMB100m BOT project United Envirotech Ltd (UEL) has just secured a RMB100m BOT (Build, Operate, Transfer) contract in Shandong Province, China; the 30k m3/day underground waste-water treatment plant is a follow-up to its earlier 100k m3/day drinking water project secured in Yantai last year. Despite the latest contract win, we note that it will only meet around 20% of our new contract wins expected this year; hence, we opt to leave our forecasts unchanged for now. Instead, we could see a large dilution from the move to issue shares to buy over the membrane operations of Memstar Technology Ltd. As such, we are also more inclined to maintain our HOLDrating, although the current upside to our unchanged S$0.975 fair value (13x FY14F) is around 8%. (Carey Wong) MORE REPORTS Yangzijiang Shipbuilding: VLGC orders for Chinese yards? According to Platts, a number of Chinese firms are seeking older VLGCs, as the country seeks to build its own VLGC fleet. There is talk that China Oriental Energy may look to order more VLGCs, with YZJ as a potential beneficiary, but we note that while the latter's Xinfu yard has plans to build large vessels and has an annual production capacity of up to 10 VLCCs, YZJ's capabilities remain primarily in containerships and bulk carriers. As China seeks to reduce its shipbuilding capacity, what is imperative for YZJ is to continue its smooth execution, secure orders (albeit at almost breakeven levels), scale up the value chain by building green vessels and developing its offshore capabilities, while waiting for the industry consolidation to run its course. Should it be one of the few large yards left standing when the dust has settled, YZJ would then find itself in a stronger position than before. Maintain HOLDwith S$0.99 fair value estimate. (Low Pei Han)

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NEWS HEADLINES - US stocks closed higher, getting a slight boost after Nasdaq-listed stocks resumed trading from a more than three-hour halt due to technical trouble. - Fed's 30-31 Jul meeting minutes offered little hint on when the US central bank might reduce its support for the US economy. - Hafary Holdings posted a full-year net profit attributable to equity-holders of S$25.4m, 5.6 times the last financial year's S$4.5m. - China Environment is looking to raise about S$15.9m in net proceeds through the issue of up to 65 million placement shares at S$0.2513 each. - Global Logistic Properties pre-leased 24k square metres (258.3k square feet) to a global consumer goods company at GLP Park Jiangning in Nanjing, eastern China. - Centurion Corporation Limited announced that its subsidiary Westlite Dormitory (V One) Pte Ltd submitted a tender for a land at Woodlands Avenue 10 which closed on 16 Aug 2013.