Sunday, March 11, 2007
Sino-Env recently released their FY06 results, showing an astonishing FY06 results. EPS for FY06 grew 37.2% over FY05 on the back of a 70+% of FY06 profits. Dispite the large difference between EPS and Profits, I'm still not worried as a 37.2% EPS annual growth is already a very healthy growth.
Sino-Env's revenue increased 76.2% in FY 06, and in line with that, Gross profit was up 72.5%. Though gross profit margin was down from 61% to 59% due to lower "gross profit margins on the industrial water treatment contracts secured by Fuda Desai", a 2% drop in profit margin is not a worrying trend on the back of the healthy profit growth.
Asset/liability ratio in FY05 was 18.7 vs FY 06 of 24.8. The asset liability ratio is in fact improved dispite the quick expansion in operations into industrial waste water treatment.
On top of that, the average contract value increased by RMB0.9 Million with an increase in contracts. Not only does this be a proof of Sino-Env's ability to secure more contracts, it shows that the status of Sino-Env over its competitors has improved.
Looking forward, I favour Sino-Env's prospects. The Chinese Government has stated its intention to improve its enviromental efforts, although they did mention they are unwilling to convert coal powerplants to oil powerplants due to cost. This could lead to more contracts for Sino-Env for desulphurization in China's dirty coal powerplants. On top of that, in 3Q2007, we are looking at a 309% increase in capacity for its industrial waste water treatment business. I look favourably to the management to fill up that extra capacity in a short time.
With the recent global sell off, Sino-Env's shares are below the $3 level. In addition, there has been increased in volume in recent times, probably a sign of increased investor interest in Sino-Env once again. Its time for investors to accumulate in their holdings in Sino-Env.
Maintain BUY, with a target price of $4.00, with 70% certainty target to be reached in 6 months.