united env

7/30/2019 united env

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www.dbsvickers.com

Refer to important disclosures at the end of this reported: OY / sa: JC

(Initiating Coverage)

12-Month S$ 0.69* (S$0.92**)

Initiate coverage

Higher plant utilizations, expansion, acquisitions

* based on fully dilution of convertible bonds into 302m shares** based on existing share cap

AnalystTAN Ai Teng +65 6398 7967

[email protected]

Price Relative

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Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Relative IndexS$

United Envirotech (LHS) Relative STI INDEX (RHS)

Forecasts and Valuation

Turnover 85 150 164 209EBITDA 21 49 68 81Pre-tax Profit 14 36 63 76Net Profit 10 27 47 57Net Pft (Pre Ex.) 10 27 47 57EPS (S cts) 2.2 5.5 5.9 7.2EPS Pre Ex. (S cts) 2.2 5.5 5.9 7.2EPS Gth (%) (35) 149 8 21EPS Gth Pre Ex (%) (35) 149 8 21Diluted EPS (S cts) 2.2 5.5 5.9 7.2Net DPS (S cts) 0.3 0.7 0.8 1.0BV Per Share (S cts) 37.3 41.1 45.3 51.4PE (X) 22.8 9.1 8.4 7.0

PE Pre Ex. (X) 22.8 9.1 8.4 7.0P/Cash Flow (X) 49.3 7.5 9.3 7.3EV/EBITDA (X) 15.4 8.5 6.9 5.3Net Div Yield (%) 0.6 1.5 1.6 2.0P/Book Value (X) 1.3 1.2 1.1 1.0Net Debt/Equity (X) 0.5 0.9 0.2 0.1ROAE (%) 6.6 14.1 16.8 14.8

( ) 4.8 5.9 -B: 1 S: 0 H: 0

: UtilitiesGas; Water & Multiutilities

Key membrane bio-reactor supplier inAsia. Alsoowns a growing portfolio of water assets in China.

Source of all data: Company, DBS Vickers, Bloomberg *Per share estimates based on full CB dilution of 793.1m shares

At A Glance

Issued Capital / Fully Diluted (m shrs) 479 / 793.1 Mkt. Cap (S$m/US$m) 239 / 196 Major Shareholders

Yu Cheng Lin (%) 18.1 Ching Wah Goh (%) 17.8 Oei Hong Leong Peter (%) 17.6

Free Float (%) 46.5 Avg. Daily Vol.(‘000) 1,637

DBS Group Research . Equity 2 Jan 2013

Singapore Company Focus

United EnvirotechBloomberg: UENV SP | Reuters: UNIT.SI

Stable flow of recurring income• Initiate coverage with BUY, +41% to fully

diluted TP of S$0.69

• Expect earnings breakthrough as recurringincome streams gather momentum

• Attractive at 8x/7xPE for 75%/21% PATMIgrowth in FY14F/15F, industry averages 13x

• Potential upside from acquisitions & expansion;

CB dilution can be potential overhang>60% of profits coming from long-term recurringtreatment income. United Envirotech (UENV), amembrane-based wastewater treatment company, hasbeen shifting to a stable, recurring and more profitableearnings profile with the acquisition of operating waterplants in China. By FY14Mar, UENV would have a totalprocessing capacity of 1.18b m3/day to generate S$25mor 60% of group PATMI. This treatment income isrecurring for the life of the water concessions (30 yrs).

Key beneficiary of China’s rapid growth in

environmental protection. Besides treatment services,UENV should continue to win engineering andconstruction (EPC) contracts given the growing demandfor membrane-based water treatment plants in China tomeet stricter discharge limits, which old plants are notequipped to process. We believe UENV can maintain~Rmb400m of new EPC orders over the next two years.

Earnings CAGR of 46% from FY13F-FY15F. UENV haspotential upside from higher utilisation rates. Besides,we have not incorporated the Phase 2 expansion oracquisitions.

BUY, TP S$0.69. Our sum-of-parts TP is based on 10xPE for EPC and DCF valuation (8.6% WACC) fortreatment. We have also assumed full dilution of theS$136.2m convertible bond to Kholberg Kravis Roberts& Co (KKR).



Company Focus

United Envirotech

Page 2

We use sum-of–the-parts analysis to value

UENV so as to capture the different valuation characteristics

of the two businesses. At the same time, we have assumed

full dilution impact from the S$136.32m Convertible Bond

issued to KKR. Based on the conversion price of S$0.45 a

share, a total of 302.9m new shares would be issued upon

conversion anytime up to 28 Sep, 2016.

. Here, we apply 10x PE

to FY14F earnings. Our assumed PE multiple is lower than

the sector average of 13-14x forward earnings, to factor in

UENV’s smaller scale of operation.

Peers valuations

Source: DBSV estimates, Company, Bloomberg

Mkt Price

EPSCAGR

Price /BV

NetDebt/

NetDebt/

FYE Curry Cap ($) 11-13 (x) Equity Equity PEG ROE

Company (US$m) 12/28/2012 (%) 12F 13F 14F 12F 13F 12F 12F 13F 11A (x) 12F (x) 13F 11A

Hyflux Dec S$ 870 1.29 7 29.6x 23.9x 20.5x 14.4x 14.0x 2.1x 2.1% 2.1% 0.18 0.22 3.5 8%

Sound Global Dec S$ 606 0.58 12 9.2x 8.7x 9.1x 5.3x 5.2x 1.7x 2.2% 2.3% cash cash 0.7 20%

Beijing Ent Water Dec HK$ 1,774 1.99 26 17.9x 14.1x 11.8x 18.2x 15.3x 1.6x 1.7% 2.1% 0.70 0.93 0.5 11%

China Everbright Intl Dec HK$ 1,821 3.84 8 17.7x 15.0x 13.1x 12.7x 12.1x 1.9x 1.7% 2.0% 0.54 0.35 1.9 14%

Tianjin Cap. Environ. Dec HK$ 88 2.00 (8) 9.8x 9.8x 8.7x 7.0x 6.7x 0.6x 2.1% 2.0% 0.91 0.87 (1.2) 8%

Average 16.8 14.3 12.7 11.5 10.7 1.6 2% 2% 0.6 0.6 1.1 12%

United Envirotech Mar S$ 190 0.49 28 22.1x 8.9x 8.2x 11.9x 8.5x 1.3x 0.6% 1.5% 0.05 0.49 0.3 13%

Div Yld

(%)(x)

EV/EBITDA

PE (x)



Company Focus

United Envirotech

Page 3

Here, we apply a) risk free rate of 1.8% based on DBS

Bank’s forecast yield on a 10-year Singapore government

bond b) expected market return of 10% based on

Bloomberg’s 10-year average return of the Singapore

market c) the company’s adjusted beta of 1.0. Based on

these assumptions, we arrive at a weighted average cost of

capital of 8.6%. This discount rate applied to theconcession’s free cash flow forecast yielded an equity value

of S$0.50/share for the treatment business. No terminal

value is included given that most projects are on a TOT or

BOT basis, implying that these would be transferred to the

government at the end of the concession period.

DCF valuation of Treatment business

Risk Free Rate (Rf) 1.75% DBS forecast of 10 yr T-bond - S'pore

Market Return (Rm) 10.00% Obtained from Bloomberg

Equity risk premium 8.25% Market return - risk free rate

Beta 1.00 Obtained from Bloomberg

Cost of Equity (Ke) 10.0% Ke = Rf + Beta x Equity ris k prem iumProportion of financing tha t i s debt 40 .0% Debt / ( Deb t + Equi ty)

After-tax cost of debt (Kd) 6.4% Cost of debt * (1-corporate tax rate)

WACC 8.6% WACC = (D/D+E) * Kd + (1 - D/D+E) * Ke

1 2 3 4 5 6 7 8 9 10 11 12

FYE Mar (S$m) FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F

EBIT 14.9 42.2 47.8 47.8 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0

Add Depreciation & Amortisation 4.1 8.6 9.0 9.0 9.1 9.1 9.1 9.1 9.1 9.1 9.1 9.1

Less Tax Provision (3.7) (2.8) (4.4) (9.3) (9.6) (10.2) (15.0) (15.0) (15.0) (15.0) (15.0) (15.0)

Less Capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Add changes to working capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total FCF to the Firm 15.3 48.0 52.4 47.6 49.5 48.9 44.1 44.1 44.1 44.1 44.1 44.1

Discounted FCF 14.1 40.7 41.0 34.2 32.9 29.9 24.8 22.9 21.1 19.4 17.9 16.5

Full

conversion

of CB :

+302.9m

shares

Existing

share cap

No of shares 793.1 490.1

Terminal Growth (assumed) 0% 0%

Total PV of FCF 464.1 464.1

PV of Terminal Value 0.0 0.0

Add Net Cash (Debt) (74.4) (172.6)

Equity Value (S$m) 389.7 292

Value Per Share (S$) 0.49 0.59

Source: DBSV estimates



Company Focus

United Envirotech

Page 4

Summing up both valuations,we derived a target price of S$0.70 for UENV. Our TP implies

12x FY14F and 10xFY15F, which is still lower than the sector

average of 13-14x although UENV features stronger than

peers EPS CAGR of 28%.

Note that our TP is on a fully diluted basis

to account for a CB conversion. As the new shares issued

will form 38% of the enlarged share capital, a full

conversion would trigger a General Offer (based on >30%

threshold). While we have assumed full dilution to beconservative, we believe that conversion would likely be

phased out and not all at once. Hence, for comparison

purposes, we have also presented a fair value scenario based

on the existing share capital.

In view of the attractive potential returns of 43% even on a

fully diluted TP, and as much as 80% upside if based on

existing share cap,

SOTP fair value of S$0.70 is on fully diluted basis

FY14Valuation

methodology Multiple Value

Value per sharebased on full

conversion of CB

Value per sharebased on existing

share cap

Core earnings PATMI (x) (S$m) (S$) (S$)

EPC income 16 PER 10 160.1 0.20 0.33

DCF of Treatmentincome

DCF 8.6% WACC;0% LT

growth; noterminal value

389.7 0.49 0.59

Fair value 549.8 0.69 0.92

Implied upside 41% 90%

Implied PER (FY14) 11.7 11.1

Implied PER (FY15) 9.7 8.5

Source: DBSV estimates



Company Focus

United Envirotech

Page 5

Kingpin of membrane-based water and wastewater treatment

Founded by current Chairman and CEO Dr Lin Yucheng in

2003, United Envirotech is a leading membrane-based water

and wastewater treatment and reclamation company in Asia

(ex-Japan), with a strong niche in Membrane Bioreactor

(MBR) and Continuous Membrane Filtration (CMF)

technologies.

UENV’s membrane-

based water treatment systems have gained recognition as

one of the most cost-effective and efficient ones around. In

fact, UENV has established a track record in MBR, especiallyin the chemical, petrochemical and industrial park sectors. Its

competitive edge is in treating wastewater of a greater

complexity to meet stringent standards, and also to reclaim

treated wastewater for reuse.

A notable testament of UENV’s superior technologies and

engineering competence is the firm’s construction of the first

and largest underground MBR plant in Asia at Jingxi,

Guangzhou for the Municipal Government of Guangzhou

City. This MBR plant has a treatment capacity of100,000

m3/day and a contract value of Rmb240m.

In Singapore, UENV supplied CMF and RO systems for

NEWater (Singapore’s large-scale water reclamation

programme) plants, especially in the area of industrial

wastewater recycling. So far, the company has undertaken

two projects for Sembcorp Utilities on Jurong Island at 5,000

m3/day each to purify and treat industrial effluence from

different sources, to various degrees of purity.

As an

EPC contractor, UENV serves petrochemical giants like

Sinopec, CNPC and CNOOC, as well as large industrial parks

like Huizhou Daya Bay Petrochemical Hub, Guangzhou

Nansha Chemical Industrial Park and Jiangsu Taixing

Chemical Industrial Park. Today, the bulk of its revenue

(>85%) is from China, with the remaining from Singapore

and Malaysia.

Sales Trend Profitability Trend

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

0

50

100

150

200

250

300

2011A 2012A 2013F 2014F 2015F

S$ m

Total Revenue Revenue Growth (%) (YoY)

10

20

30

40

50

60

70

2011A 2012A 2013F 2014F 2015F

S$ m

Operating EBIT Pre tax Profit Net Profit

Source: Company, DBS Vickers

UENV’s principal activities include providing

, ,

for water and wastewater facilities. Over the years,

UENV has also in

China under Build-Operate-Transfer (BOT), Transfer-Operate-

Transfer (TOT) and/or Build-Operate-Own (BOO) agreements.

For EPC, UENV provides

design, fabrication, installation and commissioning of

membrane-based water and wastewater treatment systems

using advanced membrane technology (e.g. MBR, CMF)

processes in micro filtration, ultra filtration, and reverse

osmosis. For the past three years, such services contributed

>70% of the company’s revenue, with the balance coming

from the water and wastewater treatment segment.

UENV’s invested projects are mainly municipal plants

from the Chinese government, which generate a steady

stream of wastewater treatment tariff receipts for the

company. In addition to its own plants, UENV also provides

O&M services of water and wastewater treatment facilities to

clients on a contractual basis to generate sustainable

recurring income.



Company Focus

United Envirotech

Page 6

UENV’s significant projects

Sinopec Hainan Refinery WW treatment and reuse

Source: Company

Creating stable, recurring and long-term income streams

Although EPC has always been the

bread and butter of UENV’s business, this market will

inevitably become competitive, and less profitable, when

most cities have installed treatment plants to meet their

required processing capacities. The EPC model, while less

capital intensive and quicker in generating upfront profits,

depends on continual efforts to secure new projects and

timely revenue recognition. Most times, revenues are lumpy

and earnings, volatile.

Determined to build a stable and recurring source of

revenue and income, management is committed to

aggressively building its plant portfolio under BOT/TOT/BOO,

in terms of wastewater treatment, drinking water supply and

industrial water supply plants and not just continuing to run

after EPC projects.

. In August 2011, UENV entered

into a definitive agreement with KKR for a US$113.8m

convertible bond investment with a five-year tenure, at acoupon of 2.5%, which could be converted into equity shares

at a conversion price of S$0.45 per share. When fully

converted, KKR will own about 38% of the group’s total

share capital.

KKR’s investment provided growth capital for UENV to

quickly seize valued opportunities as they emerge. Indeed,

management has been actively acquiring water plants in the

last 18 months to boost treatment sales, which is stable,

recurring and higher margin than the original mainstay EPC

business. Today, UENV has 12 operational plants with a total

processing capacity of 550,000 m3/day. By FY14, UENV

would have 25 plants with total processing capacities of

1.18b m3/day based on Phase 1’s designed capacity. As most

of these plants are operating above 70-80% and some close

to full utilisation, management has considered Phase 2

expansion by FY15. Based on current planning, Phase 2

expansion of existing plants alone would raise capacity by

18% to 1.39b m3/day. We like that growth is visible for this

part of the business and believe that it would be stronger

with acquisitions as UENV is still seeking investment

opportunities in municipal and industrial plants requiring

upgrading and industrial wastewater plants where the firm

would have a technological advantage.



Company Focus

United Envirotech

UENV has made excellent stride in building up its portfolio of water assets


28-Oct-2004 Liaoyang Liaoning TOT 1 100% Municipal CMF 180 36 200,000 200,000 200

14-Sep-2005 Xintai Shandong TOT 2 100% Municipal MBR 100 20 80,000 80,000 80

02-Aug-2006 Nansha Guangdong ACQ 1 100% Industrial MBR 85 17 10,000 10,000 10

16-Dec-2008 Dafeng Jiangsu BOT 2 100% Industrial MBR 72 14 15,000 40,000 40

23-Oct-2009 Hegang Heilongjiang BOT 2 100% Municipal MBR 200 40 80,000 160,000 160

31-Aug-2009 Bazhou Hebei ACQ 2 40% Municipal MBR 100 20 90,000 90,000 90

Mengzhou Henan ACQ 1 40% Industrial MBR 0 0 25,000 50,000 50

29-Sep-2011 Xinmin Liaoning BOT 1 100% Municipal MBR 69 14 50,000 50,000 50

Total 12 161 550,000 680,000 680

29-Mar-2012 Changyi Shandong JV 2 70% Industrial MBR 165 33 80,000 80,000 80

08-Feb-2011 Tangshan Hebei TOT 2 50% Industrial MBR 280 56 120,000 120,000 120

28-Sep-2009 Liaoyang (Hedong) Liaoning BOT 2 100% Municipal MBR 245 49 200,000 200,000 200

17-Apr-2012 Shangzhi, Harbin Heilongjiang TOT 1 100% Municipal MBR 70 14 40,000 40,000 40

23-Jul-2012 Changyi Shandong ACQ 2 70% Industrial MBR 220 44 70,000 120,000 120

29-Aug-2012 Xintai Shandong BOT 1 100% Industrial MBR 100 20 20,000 40,000 40

20-Sep-2012 Weifang Shandong ACQ 1 70% Industrial MBR 120 24 10,000 20,000 50

31-Oct-2012 Qitaihe Heilongjiang ACQ 2 80% Municipal MBR 92 18 90,000 90,000 90

Total 13 258 630,000 710,000 740

Total treatment capacity owned 420 1,180,000 1,390,000 1,42

Capacity increase over phases 18% 2

06-Jun-12 Liaoyang Liaoning O&M 100% 2098 200,000 200,000 200



Company Focus

United Envirotech

Page 8

Based on

processing capacities of 550k m3/day for FY13 and an

average utilisation rate of 70-80%, we estimated that

Treatment EBIT would hit S$15m in FY13 and S$42m in FY14

as processing capacity increases to 1.18b m3/year next year.

This treatment income is expected to be recurring for the 30

year term of the water concession or for as long as the plants

process wastewater discharged from either the municipalities

or industrial parks served. In other words, approximately 60-70% of the group’s earnings base is stable and recurring.

Any upward revision in tariffs, higher utilisation rate, plant

expansions and/or acquisitions would result in an upside

surprise. Based on S$70m cash on hand, we believe the

company can add another 100k m3/day to existing capacity.

.

Operating environment turning increasingly favourable for membrane-based players

The 12th FYP (2011-

2015) by the Chinese government has incorporated clear

directives to increase investment in environment and water

related projects. According to Global Water Intelligence, the

Chinese government plans to spend Rmb380bn on urban

wastewater infrastructure from 2011-15. This investment is

meant to support the water industry in meeting various

targets set in the FYP, through developing more treatment

assets and acquiring assets and technology.

The 12th Five Year Plan targets – water

Water treatment rate

85%70%

30%

Sludge treatment and disposal rate

80%

70%

30%

Rate of waste water reclamation

>15%

Capacity utilisation of the water treatment plants

>60%

>75%

Planned projects of 12th FYP

New water treatment pipeline network 159,000 km

Capacity of new water treatment plant 45.7m cu. m/day

Capacity of upgraded water treatment plant 26.1m cu. m/day

Capacity of new sludge treatment plant 5.2m ton/ year

Capacity of new wastewater reclamation plant 26.8m cu. m/day

Reduction of COD ~2.8m ton/year

Reduction of ammonia nitrogen ~0.3m ton/year

Prefecture level citiesCounty level cities

Town

Municipalities, provincial cities and planned city a reas

Been operating for more than a year

Been operating for more than 3 years

Other cities

County level cities and main towns

Cities and town

Source: China Statistical Yearbook on Environment



Company Focus

United Envirotech

Page 9

The 12th FYP also tightens targetsto improve water quality throughout the country. Stricter

discharge limits and national drinking water standards have

been imposed by the Chinese government of late. The new

drinking water standards stipulate 106 regulated items

adopted from the World Health Organisation guidelines, up

from 35 in the old standards. This has been implemented on

1 July, 2012, affecting both rural and urban areas.

Currently, many treatment plants in

China lack the capabilities to meet the new water standards.

Upgrades and improvements are required to give these plants

a new lease on life, and this drives the growing demand formembrane-based water and wastewater treatment services.

A shortage of clean water supply in parts of China also

supports this growing demand.

The

increased focus and investment from the Chinese

government in the water industry, the stricter water

standards driving demand for MBR technology, and the

shortage of clean water supply – all these factors put UENV in

a favourable position to ride the growth path.

Water resources per capita Estimated sewage treatment capacity and plant utilization

0

500

1,000

1,500

2,000

2,500

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

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2 0 1 0

m3 per person

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1 F

2 0 1 2 F

2 0 1 3 F

2 0 1 4 F

2 0 1 5 F

30%

35%

40%

45%

50%

55%

60%

65%

70%

Estimated processing capacity (LHS)Sewage plant utilization rate (RHS)

bn tons

Volume of municipal sewage and treatment rate Volume of municipal recycled water and recycled rate

0

10

20

30

40

50

60

2 0 0 3

2 0 0 4

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2 0 1 2 F

2 0 1 3 F

2 0 1 4 F

2 0 1 5 F

0%10%20%30%40%50%

60%70%80%90%100%

Treated water (LHS)

Untreated water sewage (LHS)

Sewage rate (RHS)

bn tons

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1 F

2 0 1 2 F

2 0 1 3 F

2 0 1 4 F

2 0 1 5 F

0%

2%

4%

6%

8%10%

12%

14%

16%

18%

Recycled waste water (LHS)

Recycled rate (RHS)

bn tons




Company Focus

United Envirotech

Page 10

Treatment rate in China




Company Focus

United Envirotech

Page 11

With its advanced membranetechnology (namely MBR and CMF), UENV is capable of

treating wastewater of a greater complexity to meet the

stringent standards set, and also to reclaim treated

wastewater for reuse more effectively and efficiently. UENV’s

flagship MBR plant project at Jingxi, Guangzhou, touted as

Asia’s first and largest underground plant of its type

generated much hype for the company. The underground

design, the membrane technology and its small footprint

(only a tenth of a traditional wastewater treatment plant) has

attracted a lot of interest from various parts of China and

overseas. As such, we are confident that there are many

opportunities for UENV in both municipal and industrial

sectors.

Some highlights of MBR applications are:

• Good treated water quality, able to meet more

stringent discharge limits, treated water is fit for

direct reuse

• Small space, approximately 20-30% of the traditional

treatment plant

• Generate much less sludge, saves sludge treatment

and disposal cost

• Easy conversion for existing plant upgrading and

expansion

• Biological wastewater treatment

• Wastewater recycling

• Wastewater treatment plant upgrade: expandcapacity, upgrade facilities within existing plant areato meet more stringent discharge limits

Membrane Technology is cited as “Best Available Technology” by China Membrane Technology

Source:



Company Focus

United Envirotech

Page 12

Process of MBR Technology

Source:

Less than

halfway through FY13, UENV has already announced several

successive project clinches in China, proving its commitment

to quench the dragon’s thirst for water. Some of these

projects require a higher discharge standard, standing

testimony to the company’s technical capability and

established track record. Of the six projects announced so far,

two are EPC projects, while the remaining four are

investment in water and wastewater treatment portfolio. For

the latest EPC project, it has also signed a 20-year O&M

services contract to the same plant.

Table 1: Projects Clinched in FY13 so far

Date LocationCapacity(m3 /day) Value

(S$ mn)Project/Plant

Type

29 MarShandong,

China80,000 33.0

1 water supply plant & 1wastewater treatment plant

02 AprFujian,China

150,000 23.22 wastewater treatmentplants

17 AprHeilongjiang,

China40,000 14.0

1 wastewater treatmentplant

18 AprShandong,

China100,000 43.0

EPC of drinking water supply plant

06 JunLiaoning,

China200,000 21.0

EPC & O&M to upgradewastewater treatment plant

23 JulShandong,

China120,000 44.0

2 wastewater treatmentplants


We understand UENV is actively pursuing

several MBR projects with investment values ranging

Rmb300-600m. Based on this strong enquiry pipeline, we

estimate that UENV would be able to maintain EPC new

order wins of around Rmb400m over the next two years.

Orders secured beyond this quantum implies upside surprises

to our forecast.



Company Focus

United Envirotech

Page 13

Management is a team of experienced veterans

Dr Lin Yucheng, the

current Chairman, CEO and founder of the company has

20 years of experience in the environmental research and

consultancy business. Since its founding in 2003, the

company has achieved a CAGR of 32% in revenue and

8% in income under Dr Lin’s leadership. He is supported by a

strong management team of directors with wide business

networks and a wealth of experience.

Key Management Team

Dr Lin Yucheng Chairman and Chief Executive Officer. Founder of UENV. 20 years of experience in the environmental

research and consultancy business.

Mr Wang Ning Executive Director, Chief Operating Officer Responsible for operations of UENV. Previously the DeputyGeneral Manager of Sinopec Guangzhou Branch.

Mr Li Li Technical Director, Deputy CEO Oversees research and development initiatives. Involved in

various wastewater treatment projects and was awarded

many prestigious awards.

Mr Tan Huchuan Engineering Director, Deputy CEO Oversees the execution of the integrated systems for

environmental engineering solutions. Previously a design

supervisor at a design institute for the petrochemical industry

in Heilongjiang province.

Mr Ngoo Lin Fong Chief Financial Officer Responsible for the planning and management of the group’s

financial and accounting operations. Previously an audit

manager at Deloitte & Touche Singapore.

Source: Company



Company Focus

United Envirotech

Page 14

Key Risks

UENV typically deals with single off-

taker for municipal jobs, which is usually the province’s local

government. As a result, it is important to assess the financial

condition of the respective governments before investing in

the project. So far, UENV has not taken on collection of

sewage treatment fees as management has been careful in

selecting to operate in only the more matured coastal

provinces. Most projects are secured in Shandong, Liaoning

and Guangdong where UENV is an established incumbent

although it also has plants in Heilongjiang and Fujian.

In general, sewage treatment

operators are allowed to pass on higher operating costs

arising from inflation or higher electricity tariff to end-users

through higher tariffs. However, the approval and actual

implementation usually depends on negotiations with the

local governments if it is a municipal project. Typically, such

negotiations involves months of delays.

Generally,

operators would negotiate for a minimum off-take level (i.e.

take or pay arrangement regardless of volume) in municipal

concessions to ensure required returns on their investments

are met. However, such minimum off-take arrangements may

not always exist for plants in the industrial parks serving

private customers. To mitigate such risks, UENV only acquire

operating plants in matured industrial parks or economic

zones for example Shandong’s old textile industry in

Shandong which serves the low-end domestic market.

Wastewater treatment

plants are usually constructed according to the discharge

requirements of the water feed. As of now, less than 10% of

treatment plants are graded 1A status, i.e., the highest

discharge standard. Any change in discharge standards to

stricter limits may result in higher operating and/or

investment costs if existing infrastructure is not equipped to

process discharge at the new required standard. Fortunately,

such risks should be minimal for UENV, which deals mostly

with MBR for treating wastewater to meet the highest

standards.



Company Focus

United Envirotech

Page 15

Key Assumptions

EPC order win N/A N/A 280.0 420.0 400.0 400.0

Segmental Breakdown

Revenues (S$ m)

EPC 57 62 62 113 80 113

Treatment 12 16 23 37 84 96

Others N/A N/A N/A N/A N/A N/A

EBIT (S$ m)

EPC 14 9 8 28 20 28

Treatment 8 9 12 15 42 48

Others (4) (4) (2) 0 0 0

EBIT Margins (%)

EPC 25.0 14.0 13.0 25.0 25.0 25.0

Treatment 61.3 53.8 51.2 40.0 50.0 50.0

Others N/A N/A N/A N/A N/A N/A


Expect positiveenvironmental protectionoutlook in China to drivenew order wins for UENV

Revenue split is expected toeven out between EPC andTreatment as more waterplants start contributingnext fiscal year



Company Focus

United Envirotech

Page 16

Income Statement (S$ m)

Revenue 69 78 85 150 164 209

Cost of Goods Sold (38) (49) (47) (90) (81) (108)

Other Opng (Exp)/Inc (13) (16) (21) (17) (21) (25)

Other Non Opg (Exp)/Inc 2 5 1 1 1 1

Associates & JV Inc 0 1 1 3 3 3

Net Interest (Exp)/Inc 0 0 (5) (11) (3) (4)

Exceptional Gain/(Loss) 0 0 0 0 0 0

Tax (4) (3) (4) (9) (16) (19)

Minority Interest 0 0 0 0 0 0

Preference Dividend 0 0 0 0 0 0

Net Profit before Except. 15 16 10 27 47 57

EBITDA 20 20 21 49 68 81

Growth

Revenue Gth (%) 61.3 12.8 9.4 75.6 9.8 26.9

EBITDA Gth (%) 236.6 (0.3) 5.4 133.0 37.8 19.9

Opg Profit Gth (%) 261.2 (22.7) 28.8 144.4 44.9 22.3

Net Profit Gth (%) 305.4 7.8 (34.6) 155.8 75.2 20.9

Margins & Ratio

Gross Margins (%) 44.4 37.7 44.8 39.7 50.5 48.3

Opg Profit Margin (%) 25.5 17.5 20.6 28.7 37.8 36.5

Net Profit Margin (%) 21.5 20.5 12.3 17.9 28.6 27.2

ROAE (%) 15.0 12.6 6.6 14.1 16.8 14.8

ROA (%) 10.2 8.2 3.4 6.1 9.2 9.7

ROCE (%) 11.2 6.9 4.7 8.4 10.6 11.3

Div Payout Ratio (%) 0.0 13.7 13.7 13.7 13.7 13.7

Net Interest Cover (x) 58.2 64.3 3.2 3.9 19.2 19.3


Margins Trend

11.0%

16.0%

21.0%

26.0%

31.0%

36.0%

2011A 2012A 2013F 2014F 2015F

Operating Margin % Net Income Margin %



Company Focus

United Envirotech

Page 17

Balance Sheet (S$ m)

Net Fixed Assets 2 13 19 32 35 39

Invts in Associates & JVs 9 9 16 19 22 25

Other LT Assets 77 116 161 261 311 311

Cash & ST Invts 37 47 89 28 30 91

Inventory 1 1 0 1 1 1

Debtors 38 26 40 60 66 83

Other Current Assets 6 10 75 75 75 75

ST Debt 6 13 14 14 14 14

Other Current Liab 34 23 42 69 71 89

LT Debt 14 41 162 187 90 110Other LT Liabilities 2 4 5 5 5 5

Shareholder’s Equity 112 141 178 201 359 408

Minority Interests 0 0 0 0 0 0

Non-Cash Wkg. Capital 10 14 73 67 70 71

Net Cash/(Debt) 16 (7) (87) (173) (74) (33)

Debtors Turn (avg days) 161.0 148.3 140.3 121.4 139.5 130.5

Creditors Turn (avg days) 133.9 143.6 144.9 144.2 200.1 166.2

Inventory Turn (avg days) 6.9 5.0 4.3 2.9 4.0 3.3

Asset Turnover (x) 0.5 0.4 0.3 0.3 0.3 0.4

Current Ratio (x) 2.0 2.3 3.7 2.0 2.0 2.4

Quick Ratio (x) 1.9 2.0 2.3 1.1 1.1 1.7

Net Debt/Equity (X) CASH 0.0 0.5 0.9 0.2 0.1

Net Debt/Equity ex MI (X) CASH 0.0 0.5 0.9 0.2 0.1

Capex to Debt (%) 16.4 3.4 4.0 7.5 4.8 4.0

Z-Score (X) 3.3 1.5 0.0 0.0 0.0 NA


Asset BreakdownNet FixedAssets -

22.7%

Assocs'/JVs -13.7%

Bank, Cashand Liquid

Assets -20.3%

Inventory -0.6%

Debtors -42.7%

UENV has not hadproblematic collectionof sewage treatmentfees so far.Management has beencareful to operate inestablished coastalprovinces



Company Focus

United Envirotech

Page 18

Cash Flow Statement (S$ m)

Pre-Tax Profit 19 19 14 36 63 76

Dep. & Amort. 1 1 2 2 2 1

Tax Paid (2) (1) (1) (4) (9) (16)

Assoc. & JV Inc/(loss) 0 (1) (1) (3) (3) (3)

Chg in Wkg.Cap. 5 1 (19) 1 (10) (4)

Other Operating CF (1) (7) 10 0 0 0

Capital Exp.(net) (3) (2) (7) (15) (5) (5)

Other Invts.(net) 0 0 0 0 0 0

Invts in Assoc. & JV 0 (1) (20) 0 0 0

Div from Assoc & JV 0 0 0 0 0 0

Other Investing CF (15) (36) (75) (100) (50) 0

Div Paid 0 (2) (1) (4) (6) (8)

Chg in Gross Debt (3) 23 5 25 (97) 20

Capital Issues 16 20 0 0 117 0

Other Financing CF 0 (3) 136 0 0 0

Currency Adjustments 0 (2) 0 0 0 0

Chg in Cash 17 10 42 (61) 1 62

Opg CFPS (S cts) 4.0 2.3 5.0 6.4 6.6 7.4

Free CFPS (S cts) 4.4 2.3 (0.4) 3.6 4.7 6.3


Capital Expenditure

0

2

4

6

8

10

12

14

16

2011A 2012A 2013F 2014F 2015F

Capital Expenditure (-)



Company Focus

United Envirotech

Page 19

Quarterly / Interim Income Statement (S$ m)

Revenue 21 25 20 19 32 54

Cost of Goods Sold (12) (15) (12) (8) (18) (35)

Other Oper. (Exp)/Inc (5) (5) (5) (6) (6) (7)

Other Non Opg (Exp)/Inc 0 0 2 (1) 0 0

Associates & JV Inc 0 0 1 (1) 1 1

Net Interest (Exp)/Inc (1) (1) (3) (1) (3) (3)

Exceptional Gain/(Loss) 0 0 0 0 0 0

Tax (1) (1) (1) (1) (1) (1)

Minority Interest 0 0 0 0 0 0

Net profit bef Except. 4 4 2 1 6 8

EBITDA 5 6 6 5 10 13

Growth

Revenue Gth (%) 4.9 21.3 (20.1) (4.9) 67.3 68.2

EBITDA Gth (%) 102.9 6.3 3.9 (22.5) 122.5 31.6

Opg Profit Gth (%) (1,876.1) 3.8 (38.1) 86.2 58.5 36.8

Net Profit Gth (%) 114.7 4.9 (49.2) (29.0) 339.4 42.2

Margins

Gross Margins (%) 43.5 38.7 40.0 59.3 44.5 35.7

Opg Profit Margins (%) 21.8 18.6 14.5 28.3 26.8 21.8

Net Profit Margins (%) 17.0 14.7 9.4 7.0 18.4 15.5

Margins Trend

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1 Q 2 0 1 1

2 Q 2 0 1 1

3 Q 2 0 1 1

4 Q 2 0 1 1

1 Q 2 0 1 2

2 Q 2 0 1 2

3 Q 2 0 1 2

4 Q 2 0 1 2

1 Q 2 0 1 3

2 Q 2 0 1 3

Operating Margin % Net Income Margin %


Recurring Treatment incomeformed almost 40%b of EBIT

Topline growth remainslargely driven by EPC sales.Expect Treatment to balanceup by FY14



Company Focus

United Envirotech

Page 20

DBSV recommendations are based an Absolute Total Return* Rat ing system, defined as follows:

(>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

(>15% total return over the next 12 months for small caps, >10% for large caps)

(-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

(negative total return i.e. > -10% over the next 12 months)

(negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson(www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg(DBSR GO). For access, please contact your DBSV salesperson.

This report is prepared by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities

(Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report isintended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by anymeans or (ii) redistributed without the prior written consent of DBSVR. It is being distributed in the United States by DBSV US, which acceptsresponsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein shouldcontact DBS Vickers Securities (USA) Inc (“DBSVUSA”) directly and not its affiliate.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers toDBSVR, DBSVS, and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressedare subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this documentdoes not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This documentis for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtainseparate independent legal or financial advice. DBSVR accepts no liability whatsoever for any direct, indirect and/or consequential loss(including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given inrelation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is awholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time totime have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or

employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking,investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and therecan be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or r iskassessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete orcondensed and it may not contain all material information concerning the company (or companies) referred to in this report.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates andassumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates onwhich the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly fromactual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TOBE RELIED UPON as a representation and/or warranty by DBSVR, DBSVS and/or DBSVH (and/or any persons associated with the aforesaidentities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or riskassessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating tothe commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or researchdepartment, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any USpersons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in anysecurity discussed in this document should contact DBSVUSA exclusively.

The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about thecompanies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/hercompensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 2 Jan 2013,

the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securitiesrecommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).



Company Focus

United Envirotech

1.DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned asof 28 Dec 2012.

2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the company mentioned as of2 Jan 2013.

3. Compensation for investment banking services:

i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months,and within the next 3 months receive or intends to seek compensation for investment banking services from Hyflux.

ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investmentbanking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain furtherinformation, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussedin this document should contact DBSVUSA exclusively.

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or residentof or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or usewould be contrary to law or regulation.

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the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No. 198600294G),which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any research report produced by aforeign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to “Institutional Investors”, “ExpertInvestors” or “Accredited Investors” as defined in the Securities and Futures Act, Chap. 289 of Singapore. Anydistribution of research reports published by a foreign-related corporation of DBSVR/DBSVS to “Accredited Investors”is provided pursuant to the approval by MAS of research distribution arrangements under Paragraph 11 of the FirstSchedule to the FAA.

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