Thursday, August 1, 2013

United Envirotech

United Envirotech (UEL): UEL has signed an agreement with key management and shareholders of its key membrane supplier Memstar to fully acquire Memstar’s membrane operation for a total consideration of $293.4m. Of this, $73m will be settled in cash and the remaining $220.1m via the issue of 200m new shares priced at $1.10 a share (~19x FY14F PE). Apart from ensuring membrane supply, this acquisition would enable UEL to be vertically integrated and to ride on growth potential of Memstar’s membrane operations. Financially, the deal values Memstar at 19.9x FY13 PE, which is comparable to UENV’s valuation. Although this acquisition could boost UEL’s FY14/FY15F PATMI by 1%/6%, the issue of new shares would dilute FY14/FY15 EPS by 18%/14%. DBSV maintains its HOLD rating with TP of $1.025.

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