SINGAPORE (Jan 17): DBS Vickers Securities is maintaining its “buy” rating on SIIC Environment Holdings following news of its upcoming share placement.
The stock’s target price estimate has been lowered to 68 cents from 78 cents previously.
To recap, SIIC on Monday announced upcoming placement of 350 million new shares at 63 cents each to its controlling shareholder and parent company, Shanghai Industrial Holdings (SIHL), as well as its nominee Triumph Power Limited (TPL).
Following the transaction, SIHL will hold a 45.9% stake in SIIC from 36.6% previously.
(See also: SIIC Environment to place out 350 mil new shares at 63 cents each)
In a Tuesday note, analyst Patricia Yeung says although the share placement may lead to possible dilution, this will ultimately strengthen the company’s financial position such that it will be able to conclude more merger and acquisition (M&A) transactions ahead.
“The company is making good progress of gradually expanding its water treatment portfolio with good growth potential from upgrades and tariff hikes. It is also grabbing opportunities in the sludge treatment market,” notes the analyst.
She estimates SIIC’s net debt-to-equity ratio will improve from 80% to 60% after the transaction, while repayment of loans will help to lower interest expenses.
Leung adds that asset injection of SIHL’s partial-owned subsidiaries, General Water and Longjiang Environment (LJE), will further help to increase SIIC’s project portfolio and earnings.
Given that the company has “finally made some progress” in the waste-to-energy (WTE) market by concluding an acquisition which is estimated to raise its portfolio by 600 tons/day, the analyst believes there is potential for even more WTE project wins, which will in turn provide SIIIC the additional capacity to drive earnings growth.
As at 1.12pm, shares of SIIC are up by 1.7% at 57.5 cents.
