• 3Q revenue/PATMI were 8%/21% lower than expected; opex was higher than expected
• 9M revenue/PATMI met 73%/79% respectively, of our full year estimate
• Projects coming online and kicking-in FY19e onward
• Maintain Accumulate; lower target price of $1.30 (previously $1.35)

The Positives

• 12% YoY lower staff cost cushioned the impact of lower revenue. Staff cost is the largest cost component (49% of opex). Staff expense was lower due to completion of cleaning contracts which are characteristically labour-intensive. However, this was mitigated by the headcount in place at the sludge treatment facility.
• Projects on-track and turning operational. The waste to energy (WTE) plant was completed in December 2017 and has begun commercial operations in February 2018, though not running at full capacity. The sludge treatment facility is on-track for completion by June 2018. One of the four sludge treatment trains has been tested and is ready.

The Negatives

• Revenue was lower than expected. We were expecting -2.0% YoY lower revenue, compared to actual -6.1% YoY. We under-estimated the impact from non-renewal of a large cleaning contract.
• 28% YoY higher purchase of supplies and disposal charges despite lower revenue. Purchase of supplies and disposal charges is the second largest cost component (24% of opex). The plastic recycling plant in Batam (announced in August 2016) recently obtained its operating licence and incurred start-up costs. Iwash Laundry (recently acquired in October 2017) contributed to higher energy costs.

Outlook

The outlook is positive. In our recent reports, we had been stating our expectation of near-term PATMI weakness. This has been on the basis of new initiatives coming on line, ramping up and not contributing fully yet. We expect higher earnings in FY19 due to projects (WTE plant, sludge treatment plant, Pasir Ris-Bedok public waste collection) starting to contribute meaningfully.

Opportunity: The National Environment Agency had announced the appointment of a consultancy team for the development of an Integrated Waste Management Facility (IWMF) at Tuas View Basin. This could be an opportunity for 800 Super to grow its business along its core competency of waste management.

Maintain Accumulate; lower target price of $1.30 (previously $1.35)

We have adjusted our FY18/FY19 revenue by -4.3%/-3.8% and PATMI by -10.5%/+2.7% from previous. We have also adjusted our depreciation assumption, which has raised our cash flow estimates.

We like the stock for its future earnings growth from the new projects that will contribute meaningfully in FY19e. Our target price gives an implied FY18e forward P/E multiple of 19.1 times and FY19e forward P/E multiple of 15.5 times.