United Envirotech Ltd (UEL) posted a disappointing end to FY14,
with net profit falling 31.9% to S$20.1m, and only met 58.2% of our
FY14 estimate. Going forward, management continues to maintain a pretty
positive outlook for the water industry in China. UEL’s EPC order book
of S$230m will also be largely completed in FY15; it is still on the
lookout for more waste water treatment plants to add to its portfolio.
As we believe that things will improve in FY15 – we bump up our revenue
forecast by 7.5%; while we expect core earnings to double to S$41.9m, it
is still 13% lower than our previous estimate. However, the recent
interest in water treatment plays warrants a higher 28x peg (versus 20x
before), and our fair value only eases to S$1.30 (from S$1.36). As the stock looks fairly priced, we downgrade our call to HOLD.