• Both 1Q19 revenue and PATMI met our expectations.
• 40 projects in the pipeline: 16 under construction, 3 commenced construction, and 21 in the preparatory stage.
• Less intense competition and more reasonable project valuations in the industry.
• Entered into new drinking water project in Zhejiang province
• We maintain our BUY recommendation and target price of S$0.50 based on the unchanged FY19e EPS of 5.5 SG cents and the peers’ PER of 9.0.

The Positives

New business and new footprint amid a stable growth. As of June-19, CEWL secured 11 new projects and signed one supplementary agreement for an existing project with a total investment of RMB3.7bn. Meanwhile, the company expanded the businesses scope to asset-light models by undertaking two engineering, procurement and construction and one operations and maintenance projects with a contract size of RMB146mn. It is worth noting that CEWL extended the footprint to a new provincial market, securing the first drinking water sources wetland project in Zhejiang province in 2Q19. There are 40 projects in the pipeline, including 16 under construction, 3 commenced construction, and 21 in the preparatory stage.  Another eight more projects received tariff hikes ranging from 4% to 56% in 1H19. The total designed daily water treatment capacity exceeded 6mn tonnes.

Outlook

After several years of reform in the WWT industries, the competition becomes less intense as the underperformed or unperformed projects or companies have been phased out or incorporated by the quality market participant. According to management, the valuation of projects trends to be more reasonable at the juncture. Therefore, the room for both organic and inorganic growth swells. Meanwhile, the company has widened its business into tapping into drinking water business and asset-light models that are expected to enhance ROE marginally. We foresee a robust and stable growing performance in the next couple of years.

Maintain BUY with an unchanged TP of S$0.50

We maintain our target price to S$0.50 based on the unchanged FY19e EPS of 5.5 SG cents and the peers’ PER of 9.0, and we keep the BUY recommendation.