Excerpts from analyst's report
Phillip Securities Research analyst: Richard Leow, CFTe
 » Full year revenue beat estimates by 6.8%; due to a stronger 2H FY16. » Full year recurring-PATMI beat estimates by 28.4% due to the combination of higher revenue that flowed to bottom line and the low base effect. » Revenue growth in FY 2016 from MHA and South-West IPC contracts. » Maintain Buy, with revised target price upwards to S$0.66 (previous: S$0.635), based on 7.5x FY16e P/E multiple. |
With the prevailing market uncertainty and turmoil, we advocate buying this defensive stock. 800 Super provides essential waste management services, which are non-cyclical in nature. The S$0.02 final dividend offers a yield of 5%, based on last closing price of S$0.40. The current sell-down of the stock is irrational. Reiterate BUY with target price of S$0.66.
What is the news?
800 Super announced its full year FY2015 (Y/E Jun) financial results on 24 August after trading hours. 2.0 Cents final dividend proposed met our forecast. This represents a 29.4% payout on recurring EPS. (FY14: 1.0 Cents DPS; 20.0% payout.)
How do we view this
» Sizeable contract by Ministry of Home Affairs (MHA) is evidence of 800 Super's ability to deliver quality service. 800 Super had announced on 16 February the award of contracts by MHA to provide cleaning and horticultural services for the east and west regions of Singapore. The aggregate contract is for a period of three years commencing from 1 April 2015 to 31 March 2018, and is worth approximately S$38.6 million (average of S$12.9 million revenue to be recognised annually). For context, excluding the partial revenue contribution to FY2015 revenue, this MHA contract is estimated to increase revenue by about 9.4%.
» South-West region Integrated Public Cleaning (IPC) contract and MHA contract will propel revenue further in FY 2016. Full year effect of these two contracts will only materialise in FY2016. Ramp-up transition phase in 1H FY15 for the IPC contract results in back-loading of revenue recognition. Meanwhile, the MHA contract made a partial contribution in 2H FY15 and will fully contribute from 1H FY16 onwards.
| Investment Action |
 "Our key investment thesis for 800 Super is its defensive business model, resilient earnings and superior ROE around low-twenties. We also see evidence of 800 Super's ability to compete both in quality of service and pricing to win sizeable government contracts. We assign a P/E multiple of 7.5x to 800 Super and have a target price of S$0.66. Reiterate BUY."-- Richard Leow, CFTe (photo) |
» We expect the Biomass plant to lead to better integration of the business and cost savings. 800 Super is developing a waste-to-energy (WTE) plant at Tuas South. Horticultural waste from its horticultural services business segment will be burnt here, leading to savings in incineration cost, while producing some energy.
We understand that the Capex for this project has already been substantially incurred, primarily attributable to the land that was purchased from JTC in 2012.
Full report here.
