• S$39.45mn revenue in line with our forecast of S$39.20mn; and met 24.4% of our full year forecast
• S$4.51mn PATMI exceeded our forecast of S$4.22mn by 6.9%; and met 25.6% of our full year forecast

Insider buying affirms confidence in outlook for 800 Super; expect price floor at 75 cents

As disclosed on 3 October, Yeong Seong Investment Pte Ltd (YSI) had purchased 194,500 shares on 30 September and 73,200 shares on 3 October. Mr Lee Koh Yong (Executive Chairman), Mr Lee Hock Seong (Brother of the CEO and Executive Chairman) and Mr Lee Cheng Chye (CEO) hold a 28%, 28% and 24% stake in YSI, respectively. YSI remains the largest shareholder and now controls 66.97% of 800 Super, from 66.8% previously. We now expect to see a price floor at 75 cents.

WTE plant to & MRF projects to improve margins

The waste-to-energy (WTE) plant is on track for completion in 2H 2017. We believe this will be in the earlier part of 2H 2017, i.e. 3Q 2017 (1Q FY18). The WTE plant will supply energy to the existing vehicle depot and adjacent material recovery facility (MRF), thereby lowering energy costs and disposal charges. “Purchase of supplies and disposal charge” is the second-largest cost component (17% of FY16 revenue) after staff costs (49% of FY16 revenue). While disposal charges are not disclosed as an individual expense, we think it is fair to assume it constitutes an overwhelming proportion of “Purchase of supplies and disposal charge”. We highlight that the WTE plant caters only to horticultural waste, so we do not expect disposal charge to be eliminated. Electricity expense is not a significant expense for the Group.

Construction for the MRF is expected to commence in 1Q 2017. The MRF will also contribute to lower disposal charges, with token revenue from sale of the sorted materials.

~10% higher garbage collection fees from 1 January 2017 does not accrue to 800 Super

The National Environment Agency (NEA) announced on 7 November that refuse collection fees for households would be revised higher from 1 January 2017. We understand that the increase will not be passed on to 800 Super. The higher fees are for the contract between NEA and households, which is separate from the contract that NEA has with 800 Super.

Upgrade to “Accumulate” rating with new target price of S$0.92 (previous: S$0.74)

We have adjusted our disposal charge assumptions from 1Q FY18 onwards (effect of WTE plant) and brought operating expenses (OpEx) assumptions in line with 1Q FY17. Consequently, FY17e/FY18e dividend assumptions of 3.05/3.35 cents are now higher than previous 2.95/2.95 cents (payout ratio assumption remains unchanged at 30%).

We have raised our valuation metric to 9.0x P/E multiple (previously 7.5x) due to renewed earnings growth visibility from cost-management initiatives, and moving it closer in line to peer’s P/E multiple. Our target price is based on the rolling next-twelve-months (NTM) EPS of 10.24 cents.

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