What is the news?
The National Environmental Agency awarded 800 Super Waste Management Pte Ltd, a wholly-owned subsidiary of 800 Super Holdings Ltd (“800 Super”), the contract to provide public waste collection (PWC) services in the consolidated Pasir Ris-Bedok Sector. The contract value is $193.5mn and is effective from 1 July 2018 to 31 October 2025, for a tenure of seven years and four months.
How do we view this?
The outlook is positive. Some weakness in the near-term is to be expected as recent initiatives (waste to energy plant, sludge treatment facility and public waste collection contract) normalise or ramp-up utilisation, but earnings and cash flow is expected to be higher after the respective learning curves have been overcome.
Downgrade to Accumulate (from Buy); lower target price of $1.40 (previously $1.43)
Our rating downgrade is due to the combined effect of the 6.4% favourable price movement since our last report, and the new lower target price. We have revised our estimates to include the PR-B contract. Our target price is lower than previous due to our change of assumption that the ongoing AMK-TPY contract is not renewed when it concludes in September 2021. Our target price gives an implied FY18e forward P/E multiple of 16.3 times.
Public Waste Collection in Singapore consolidates from nine to six sectors
Figure 1: Pre-consolidation original nine sectors
Figure 2: Present-day seven sectors
Figure 3: Post-consolidation six sectors
Pasir Ris-Tampines Sector is materially larger than Ang Mo Kio-Toa Payoh Sector
Data from the Census of Population 2010 is likely to be outdated, in view of recent residential developments. Nonetheless, it suggests that the Pasir Ris-Bedok sector is twice as large as the Ang Mo Kio-Toa Payoh sector, in terms of number of households.