United Envirotech

United Envirotech: Counter hits a 52-week high at $0.92 today. We highlight that private equity M&A specialist, Kohlberg Kravis Roberts (KKR) currently holds 16.6% of the company shares but could raise its stake to 45.2% and trigger a takeover if the private equity firm converts its entire US$113.8m convertible bonds into United Envirotech (UENV) shares. The 2.5% 2016 convertible bonds carry a conversion price of $0.45/share, and are currently deep in the money given that UENV is trading at $0.915. In a recent interview with The Edge magazine, UENV revealed that the group aims to pursue a more stable earnings stream, by balancing large scale EPC (engineering, procurement and construction) projects with more BOT (build, operate and transfer) and TOT (transfer, operate, transfer) projects. This is because contributions from EPC projects tend to be lumpy, while BOT and TOT projects provide more recurrent income. Management is also confident about business prospects in China, fuelled by the government’s renewed emphasis on pollution reduction and environmental protection. The group plans to focus on industrial parks, which are seeing stricter regulations and greater scrutiny by local environmental agencies. At the current price, UENV trades at 17.7x trailing P/E versus peer Hyflux’s 30.6x.