United Envirotech secures RMB100m BOT project

But there's no celebrating just yet.

According to OCBC, the United Envirotech Ltd (UEL) is way behind in contract wins this year, meeting only "around 20%" of new contract wins expected this year. Still, the research firm is bullish that UEL can bag more similar projects in Shandong and other parts of China in coming years.

Here's more from OCBC:

New RMB100m BOT project in Shandong. United Envirotech Ltd (UEL) has just secured a RMB100m BOT (Build, Operate, Transfer) contract in Shandong Province, China; this to construct and operate a 30k m3/day municipal waste-water treatment plant. Scheduled to be completed by 3QCY14, it will use the company’s membrane bioreactor (MBR) technology and will be built underground, just like the 100k m3/day one it built in Guangzhou City in 2010.

Funding is not an issue. As before, UEL plans to fund the project using the proceeds from the CB issue and share placement to KKR and bank financing. Based on its usual 40% equity/60% debt split, UEL should have no issues with coming up with S$8m of cash, given its cash balance of S$25.9m as of end Jun 2013. Recall that UEL can also tap on the recently launched US$300m MTN programme.

Still positive on Shandong region. Noting that the latest project (which will reach 80k m3/day upon completion of Phase 2) is a follow-up of the 100k m3/day membrane-based drinking water project it secured in Yantai last year, management remains upbeat about its prospect there and intends to continue to secure more similar projects in Shandong and other parts of China.

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. Separately, UEL has entered into an agreement to acquire 100% of Memstar Technology Ltd’s (MTL) membrane operations for S$293.4m – paying S$73.354m in cash and issuing 200.055m UEL shares at S$1.10 each. While the move is positive in the longer term, the stock could see a large dilution on the completion of that deal.

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