SINGAPORE (Jan 11): SAC Advisors is maintaining its “buy” call on Sanli Environmental with a target price of 36 cents to represent 15.9 times FY18E P/E – a valuation deemed fair given the group’s resilient and recession-proof business model, in SAC’s view.

This comes after Sanli on Wednesday announced three new contract wins worth a total of $10 million, comprising projects in both the engineering, procurement and construction (EPC) as well as operations and maintenance (O&M) segments.

See: Sanli Environmental secures 3 new contracts worth $10 mil

In a Thursday report, analyst Terence Chua notes that the group is currently in a net cash position, with the latest round of contract wins estimated to contribute positively to the group’s revenue for the financial year ending March 2018.

As such, Chua underscores its current valuations of 13 times FY18E P/E and 8.7 times FY18E EV/EBITDA as undemanding.

While the analyst expects net margins to dip in FY18E due to one-off IPO expenses of about $1.3 million, he believes this will remain stable at about 7.2% moving forward, such that net profit grows by a three-year CAGR of 19.2% on the back of new contract wins from a higher imputed win rate.

“The slowdown in revenue growth in FY17 was attributed to a decline in the O&M segment due to the lower value of contracts recognised during this period, though this was mitigated by an increase in revenue from the EPC segment,” notes Chua.

“We think investors should not be unduly worried about the decline in the O&M segment as the execution of service and maintenance contracts actually increased in the last financial year. Moreover, we expect that Sanli will be better able to secure new and larger contracts moving forward due to their listing status and L6 certification,” he adds.

As at 10am, shares in Sanli are trading  2 cents higher at 32 cents, or 14.1 times FY18F core P/E.