STI 170317

The Straits Times Index, Source: Bloomberg

One of the key focus in Singapore’s Budget 2017 that have an impact on everyone will be the proposed rise in water rates. With Hyflux being one of the beneficiaries of this, there are other water companies in Singapore that will be gaining from other markets.

You may read the analysis on Hyflux here and what to buy to benefit from Budget 2017 here.

In the 13th five-year plan of China, the government made it one of the focus to clean up the pollution in the country. This includes both air and water as the government pushes for green energy in the country.

However, more cleaning is needed in the water as prolonged pollution in the rivers have made it hard for the government to clean them up.

These three water companies are all involved in cleaning up China’s water and are benefiting from the current five-year plan.

China Everbright Water Limited

U9E

China Everbright Water, Source: Bloomberg

China Everbright Water (SGX: U9E) is a company that is involved in wastewater treatment, reusable water and wastewater heat pump projects. Its management is optimistic about the company’s outlook as they gave four drivers towards their business.

The four drivers are:

  1. The Chinese government is seeking to boost water quality standards
  2. Investments, construction, operation and management will be involved in the integrated water treatment process, instead of just participating in certain nodes of the chain
  3. Central government’s push for the development of infrastructure in rural areas aimed at improving water quality
    Going forward, China’s government will be promoting the Private Public Partnership model to improve efficiency
  4. Revenue for China Everbright Water increased by 37.4 percent in FY2016 that were contributed by its construction segment through several expanded and upgraded Build-Operate-Transfer projects. However, profit decreased by 12.1 percent attributed to higher cost of financing.

Nevertheless, analysts from Phillip Capital Research gave China Everbright Water a “Buy” call with a target price of $0.56.

CITIC Envirotech Limited

CEE

CITIC Envirotech, Source: Bloomberg

With two State Owned Enterprises as its major shareholders, CITIC Envirotech (SGX: CEE) is expected to see strong growth momentum as they continue to secure more projects with their support.

Along with its technological capabilities, CITIC Envirotech is well poised to gain more market share in China’s water sector. In FY2016, the group managed to secure its first Public-Private-Partnership project in hazardous waste treatment.

This year proved to be a great one for CITIC Envirotech as they beat analyst estimates by 20 percent, registering a $99.3-million net profit. It was mainly contributed by the better margin from its engineering arm as it increased from 16.8 percent to 27 percent.

A special dividend payout of $0.0025 was announced on top of the higher dividend payout of $0.0075 came as a surprise to the street as it only gave out $0.0018 in dividends last year.

As such, analysts from DBS Research gave CITIC Envirotech a “Buy” call with a target price of $0.92.

SIIC Environment Holdings Limited

BHK

SIIC Environment, Source: Bloomberg

SIIC Environment (SGX: BHK) is a wastewater treatment, purification and system automation company. With over 100 projects across China, SIIC Environment’s parent company has displayed a great amount of confidence in its development as they proposed to undertake a placement of shares them at a nine-percent premium of the current share price.

The company is expected to continue its strong performance into FY2017 as construction activities remain high. Contributions from its acquisition of Longjiang Group and plant upgrades are forecast to boost earnings as well.

Its management targets its water treatment growth by 1 million to 1.5 million tonnes and is planning a dual listing of the stock in Hong Kong. This can be seen as a good sign for SIIC Environment as our regular contributor Kim Iskyan is a huge advocate for Hong Kong-listed Chinese stocks (H-Shares).

Analysts from RHB Research reiterated their “Buy” call towards SIIC Environment but gave them a lower target price of $0.96 after accounting for the dilution from the share placement.

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