Analysts predict upside for wastewater-treatment firms
The sector has flown under investors' radar lately, but its players have quietly been bagging contracts; business from China is expected to take off
WASTEWATER treatment firms on the Singapore Exchange (SGX) have scored a flurry of contract wins lately, but with the sector currently out of favour among investors, these have barely moved their share prices.
Still, analysts say the fundamentals of the sector remain strong, and that it is only a matter of time before their stock prices catch up.
UOB Kay Hian analyst Edison Chen said: "The whole sector is downbeat. It's at the trough of the whole cycle."
As a result, the sector is now trading at a price-earnings ratio of 15 to 18 times, compared to 26 to 30 times during their peak, noted CIMB analyst Ngoh Yi Sin.
The government has therefore made tackling water pollution - as well as air and soil pollution - a priority in its 13th Five Year Plan running till 2020.
UOB Kay Hian's Mr Chen said: "The outlook (for the water-treatment sector) is very, very good. The contract wins have been strong. Nothing has changed in the water-treatment space; it's just the news flow and the market sentiment." He said he expects the Chinese government to announce new water-related policies after the leadership reshuffle at the upcoming 19th National Congress of the Chinese Communist Party.
She advises investors to look for companies with financial muscle, or those with access to various financing channels to fund projects, as they will be able to grab a larger share of the market and thus have higher potential for earnings growth.
Citic Envirotech and China Everbright Water are the most favoured by analysts covering the sector.
DBS Vickers has a "buy" call on both companies on account of their strong deal flows last year; these are expected to lead to stronger earnings growth this year.
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