By Carey Wong
Wed, 30 Jun 2010, 09:01:34 SGT

United Envirotech Limited (UEL) is a comprehensive environmental solutions provider, providing both environmental engineering and environmental consultancy solutions. UEL has an established track record in MBR, especially in the chemical, petrochemical and industrial park sectors. UEL has also ventured into the municipal sector with the building of one of China’s largest MBR plants in Guangzhou City. China currently faces a severe strain on its water resources, depleted by more than a decade of rapid industrial growth. With water pollution fast becoming a concern as well, UEL believes it is well placed to ride on the government’s growing emphasis on environmental responsibility and stricter rules on discharge limits. Buoyed by the optimistic outlook for China’s water and waste-water industry, UEL believes that there are opportunities to secure both new and upgrading projects in the industrial and municipal sectors. Funding is unlikely to be an issue as it had recently secured a RMB3b credit facility. Assuming a long-term growth rate of 2%, a required return on equity of 7.6%, we derive a FCFE fair value of S$0.52 per share. Given the 36.8% upside from the current stock price, we initiate coverage on UEL with a BUY rating.

Leading MBR specialist. United Envirotech Limited (UEL) is a comprehensive environmental solutions provider, providing both environmental engineering and environmental consultancy solutions. UEL provides engineering services which involve the design, fabrication, installation and commissioning of membrane based water and wastewater treatment systems using its advanced membrane technology namely membrane bioreactor (MBR) and continuous membrane filtration (CMF) processes in micro-filtration, ultra-filtration and reverse osmosis.

Balance of industrial and municipal projects. UEL has an established track record in MBR, especially in the chemical, petrochemical and industrial park sectors. Some of its clients include petrochemical giants such as Sinopec, CNPC, CNOOC. Besides industrial projects, UEL has also ventured into the municipal sector with the building of one of China’s largest MBR plants in Guangzhou City. It is also actively investing and operating several BOT/TOT municipal waste-water treatment projects in China.

Helping to solve China’s water woes. China currently faces a severe strain on its water resources, depleted by more than a decade of rapid industrial growth. With water pollution fast becoming a concern as well, UEL believes it is well placed to ride on the government’s growing emphasis on environmental responsibility and stricter rules on discharge limits. It notes that its membrane-based water treatment systems have gained recognition as a more cost-effective and efficient solution for large-scale projects and difficult to treat wastewater. Its advanced MBR technology also allows wastewater to be more efficiently treated to a higher degree before it is discharged or recycled.

Opportunities to expand into overseas markets. Besides China, management is also keen to venture overseas. UEL believes it could start by building the water treatment facilities for its existing Chinese petrochemical customers as they expand overseas. Separately, UEL is exploring a potential TDR listing in Taiwan to gain exposure to more foreign investors and also enter the waste-water treatment market there.

Initiate coverage with BUY and S$0.52 fair value. Buoyed by the optimistic outlook for China’s water and waste-water industry, UEL believes that there are opportunities to secure both new and upgrading projects in the industrial and municipal sectors. Funding is unlikely to be an issue as it had recently secured a RMB3b credit facility. Assuming a long-term growth rate of 2%, a required return on equity of 7.6%, we derive a FCFE fair value of S$0.52 per share. Given the 36.8% upside from the current stock price, we initiate coverage on UEL with a BUY rating.