United Envirotech Ltd (UEL) reported its 2Q11 results yesterday morning, with revenue jumping 103.8% YoY (also up 2.9% QoQ) to S$23.0m, while net profit also jumped 94.6% YoY and 43.3% QoQ to S$6.1m. Going forward, management remains upbeat about its prospects in China’s wastewater industry, especially in the industrial sector. We estimate that the group is currently sitting on an order book of S$120m (recently boosted by the contract to build a 50k m3/day wastewater MBR plant in Neijiang Xi Industrial Park), which it will deliver through to Sep 2011. But the group is not resting on its laurels as it is currently hunting for more EPC contracts as well as looking for existing TOT (Transfer-Operate-Transfer) plants to add to its investment portfolio. UEL has also raised about S$28m from its TDR listing and intends to use it to acquire TOT projects. We have bumped up our FY11 estimates for revenue by 6.5% and earnings by 10.8% (FY12 estimates also up 6.3% and 16.5% respectively); this in turn raises our DCF-based fair value from S$0.63 to S$0.69. Maintain BUY.

2Q11 results as expected. United Envirotech Ltd (UEL) reported its 2Q11 results yesterday morning, with revenue jumping 103.8% YoY (also up 2.9% QoQ) to S$23.0m, thanks to the completion of the Guangzhou JingXi plant, Asia’s largest underground MBR (membrane bio-reactor) wastewater treatment facility. While overall gross margin slipped from 61.5% in 2Q10 to 42.3% in 2Q11, as large EPC projects tend to come with lower margins, it was better than the 35.3% recorded in 1Q11. As a result, net profit similarly jumped 94.6% YoY and 43.3% QoQ to S$6.1m. For 1H11, revenue climbed 125.3% to S$45.4m, meeting 45.1% of our full-year estimate, while net profit jumped 144.2% to S$10.3m, or around 57.4% of our FY11 forecast. 

S$120m order book to fulfill. Going forward, management remains upbeat about its prospects in China’s wastewater industry, especially in the industrial sector, citing the stricter discharge limits imposed by the Chinese government and the shortage of water supply in various parts of China. We estimate that the group is currently sitting on an order book of S$120m (recently boosted by the contract to build a 50k m3/day wastewater MBR plant in Neijiang Xi Industrial Park), which it will deliver through to Sep 2011. But the group is not resting on its laurels as it is currently hunting for more EPC contracts as well as looking for existing TOT (Transfer-Operate-Transfer) plants to add to its investment portfolio. 

Likely to obtain low-hanging fruit soon. We believe that it would not be long before we see progress. This as the same Neijiang contract will allow UEL to enter into further talks to form a JV with Neijiang Investment Holding Company and Neijing Economic Development Committee to acquire an existing 50,000m3/day municipal wastewater treatment plant under a (TOT) Transfer-Operate-Transfer) arrangement. The JV company will also be involved in the construction and supply of 100,000m3/day of potable water to Neijiang City. Besides China, we understand that UEL has also started working with a Taiwanese company to explore the wastewater industry there, following its well-received listing of its TDRs recently. UEL has also raised about S$28m from the listing and intends to use it to acquire TOT projects.

Revising fair value to S$0.69. We have bumped up our FY11 estimates for revenue by 6.5% and earnings by 10.8% (FY12 estimates also up 6.3% and 16.5% respectively); this in turn raises our DCF-based fair value from S$0.63 to S$0.69. Maintain BUY.