United Envirotech to invest S$40m in Chinese TOT/BOT projects

Expansion agreement cemented with Jiangsu government.

Here's more from DBS Vickers Singapore:

Pressing ahead with TOT/BOT expansion. United Envirotech has agreed with the Jiangsu government to invest Rmb200m (S$40m) in “transfer-operate-transfer”/ ”build-operate-transfer” (TOT/BOT) projects. The TOT is a 30 year concession to operate a 120,000 m3/day textile and mixed industrial wastewater treatment plant. Phase 1 of the development, c.40,000 m3/day, is to begin operation by June 2013. Meanwhile, the BOT projects include 1) a 60,000 m3/day textile industrial wastewater recycling plant and 2) a 40,000 m3/day industrial water supply plant. (Phase 1: c.50,000 m3/.day)

UEL’s capacity expansion is long term positive but initial contributions from phase 1 development are in line. We had expected UEL to invest Rmb290m for 80,000 m3/day of capacity. Now, the company is investing Rmb200m for 90,000 m3/day (Phase 1 development), which is largely within our expectations but at a lower investment amount. These assets have the potential to ramp up by c.2.4x to 220,000 m3/day, which would be positive for the Group if and when it materializes progressively over the longer term.

Further acquisitions from the balance of S$16m (Rmb80m) proceeds from KKR would provide upside to our forecast. While this development is mildly positive, the additional capacity of 90,000 m3/day for Phase 1 development would not change our forecasts materially. We are retaining our estimates for now. We expect further acquisitions from the remaining S$16m proceeds to provide upside to our estimates. Maintain Buy and S$0.74 TP.

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