SINGAPORE (Nov 13): Phillip Securities Research is keeping its “buy” call on environmental services provider 800 Super Holdings but lowering its target price to $1.43, down from $1.53 previously.

“We like the stock for its recession-proof business model, yet with a pipeline of projects to drive medium-term growth,” says analyst Richard Leow in a report on Monday.

800 Super saw its PATMI dip by 2.5% to $4.4 million in 1Q18 as an increase in staff cost put the squeeze on margin.

Revenue remained stable at $40 million during the quarter, up 1.4% y-o-y.

“The ongoing sludge treatment facility is expected to contribute to group earnings over the long-term,” says Leow.

However, the analyst says near-term PATMI weakness is to be expected in FY18 and FY19. “This is due to the higher depreciation expense from the WTE plant and sludge treatment facility when they are completed, but initially under-utilised during their respective ramp-up periods,” he says.

Nonetheless, Leow believes that the dividend of 4.0 cents if sustainable going forward as cash flow from operations is expected to remain stable.

Meanwhile, he notes that 800 Super has a “credible chance” of scooping the Pasir Ris-Bedok PWC contract.

The National Environment Agency (NEA) is consolidating the existing Pasir Ris-Tampines and Bedok sectors to increase the number of households per sector, and improve economies of scale and efficiency.

The contracts, currently operated by Veolia and SembWaste, will conclude in June 2018 and October 2018, respectively.

“800 Super had put in the lowest-priced bid of $194 million for the Pasir Ris-Bedok Public Waste Collection (PWC) contract,” says Leow. “Winning the Pasir Ris-Bedok PWC contract will lead us to adjust our estimates upwards.”

As at 4.58pm, shares of 800 Super are trading half a cent higher at $1.18, implying an estimated price-to-earnings ratio of 13.1 times and a dividend yield of 3.4% in FY18.