SIIC Environment

SIIC Environment: SIIC results topped estimates, as 4Q net profit more than doubled y/y to Rmb65.9m (+111%), despite a 35% drop in revenue to Rmb286m, bringing FY14 earnings and revenue to Rmb262.4m (+75%) and Rmb1.3b (+6%), respectively.

For the quarter, top line tumbled 35% to Rmb286m, dragged mainly by the lumpy construction segment (-78%), from the completion of fewer projects and divestment of its engineering, procurement and commissioning business. This was partially mitigated by higher water treatment and water supply revenue (+15%) due to higher volumes and contribution from new subsidiaries, as well as maiden contribution from waste incineration revenue (Rmb19.6m).

Meanwhile, gross margin improved 9.4ppts to 33.2% from the shift from the less profitable construction segment.

Bottom line was also boosted by share of results from new associates and JVs, Longjiang Environmental Protection Group and Shanghai Pucheng Thermal Power Energy, respectively, the absence of a one-off impairment loss, as well as negative goodwill (Rmb4.5m) from the acquisition of Shanghai Qingpu.

Management is of the view that environment in the industry is healthy, underpinned by recently-introduced policies which include market-oriented investment approaches and more government effort on water discharging monitoring.

Acquisitions made throughout FY14 brought SIIC's portfolio to about 70 water treatment and supply projects with total design capacity of ~5.5m tons/day and 3 waste incineration projects with total design waste treatment capacity of 3,200 tons/day.
Most of the projects have started contributing, with an incremental amount due in FY15/16.

BVPS of Rmb0.3849.