Singapore Corporate News - 16 Jul 2007

Sino-Environment expects flat H1 growth

CITING capacity constraints, Sino-Environment Technology Group says it is expecting flat first-half earnings growth. But the China-based provider of industrial and municipal waste-treatment services envisages a strong second half.

'We will still see some growth in the first half of 2007 versus the first half of 2006 but it will be flattish,' executive director and chief financial officer David Tan told BT. 'Though there will be additional contribution from the wastewater arm and dust-elimination arm, these are not expected to be significant at this stage.'

Mr Tan made these comments in a recent interview as he dismissed market rumours that could have contributed to the recent plunge in the share price of the company.

Sino-Environment, whose core business is in making VOC (volatile organic compound) automatic recycling devices for power plants, also undertakes industrial and municipal wastewater treatment and desulphurisation projects for power plants.

For the January-June first half last year, Sino Environment saw its net profit jump 67 per cent to 50.6 million yuan (S$10.1 million) from a pro forma 30.3 million yuan on the back of an 89 per cent surge in revenue to 104.8 million yuan. The company was listed on the main board in April last year.

Mr Tan said revenue during the first half this year is expected to be similar to a year ago as the group produced fewer VOC devices than the same period last year, but at higher contract values.

He estimated that the group completed some 23 VOC devices for power plants with an average contract size of 4.3 million yuan in the first half of last year while in the first quarter this year, it made eight devices for a larger average contract size of 6.7 million yuan.

But he noted that the problem of capacity constraint is being solved by relocating the group's manufacturing activities to a larger facility in Fujian province, which will double its VOC capacity from three devices a month to seven devices by August. This is expected to lift earnings in the second half, to even marking a year-on-year double-digit growth, Mr Tan said.

'Second half will definitely be very strong. The main key driver is the rising awareness in China with regard to the environment - that is the cornerstone of our growth,' he added.

Sino-Environment is currently in talks with four to five power plant operators for potential desulphurisation projects.

But the anticipation of a flat growth in the first half was probably one of the dampening factors for the recent share price slump, Mr Tan noted.

The stock suffered its largest one-day fall in four months on July 5, which the management had attributed to error trades. Subsequent rumours surrounding the company, such as flooding at its plant, insider selling of shares as well as the sacking of its chief executive officer were all dismissed by Mr Tan.

'I think the main thing is, if the investors are looking for a quantum leap in the first half of this year, that will not be forthcoming, mainly because we were at maximum capacity through the whole of last year and the first half of this year,' Mr Tan said. But he was quick to assure that there will not be any 'rude shocks' for the first half and that fundamentals remain firm.

UOB KayHian analyst Chong Mean Phil, who is reviewing his target price for the stock at $2.80 but keeping his 'buy' call, said he still likes the stock in view of continued investors' interest in environmental conservation stocks as the world, and increasingly, China, becomes more concerned about environmental issues.

'Investors that like the environmental sector and have a longer term perspective may wish to accumulate the stock on its recent price weakness,' Mr Chong said in a note.

CIMB-GK also remains positive on the stock with an 'outperform' rating and a $3.50 target, noting that the stock remains undemanding against its earnings per share CAGR of 68 per cent for fiscal 2007-2009.

'We expect a much stronger second half, led by capacity expansion and maiden contributions from its municipal wastewater treatment project, though small,' the brokerage said in a note.

Sino-Environment shares, which were issued at 33 cents apiece, closed last Friday at $2.79.

Eyes on Keppel, DBS as earnings season kicks off

The interim earnings season kicks off this week - providing investors with further clues as to where market valuations are heading.

Some 477 companies with a December financial year-end will be reporting results for the second quarter and first half of 2007. While companies with a market capitalisation of $75 million and below - in view of the higher relative costs for smaller firms - are exempted from reporting quarterly results, all listed companies are required to submit half-year earnings.

Early attention will likely be focused on the Keppel Group, whose units will be among the first to report their interim results.

Evergro Properties - formerly known as Dragon Land and now part of the Keppel family - will be announcing its earnings on July 19. Evergro focuses on the mid-to high-end residential market in China's booming second-tier cities like Tianjin and Jiangyin.

Keppel Land, the group's property arm, will be announcing its results on July 24, as would Keppel Telecommunications & Transportation, followed by Keppel associate Singapore Petroleum Company on July 25. The parent group, Keppel Corp, will report its results on July 26. Once a bellwether stock for the Singapore economy, Keppel Corp these days is an offshore and marine (O&M) play. Investor expectations are bullish - given the flow of new orders and robust industry fundamentals.

With its main local rival, the SembCorp Group, reporting only in early August, KepCorp's results will set the tone for the O&M sector. SembCorp Marine, the rig-building arm of the SembCorp Group, will announce its results on Aug 2, followed by parent group SembCorp Industries on Aug 7.

Several real estate investment trusts (Reits) will be among the first batch of companies reporting interim earnings in July - including K-Reit, Ascendas Reit, CapitaCommercial Trust and Cambridge Industrial Trust.

DBS Bank will kick off the reporting season for the banks, with South-east Asia's biggest bank expected to announce its interim earnings on July 27, followed by OCBC Bank on Aug 8. Banks' earnings are expected to be strong, benefiting from loans growth in the business, building and construction, and housing sectors. Fee-based income may also get a boost from increased capital market and corporate activity.

In the tech sector, all eyes will be on chip maker Chartered Semiconductor Manufacturing, which will be reporting on July 27. In June, Chartered had reiterated its earlier forecast of a drop in performance for Q2 - which will be its third in a row. STATS ChipPAC, South-east Asia's largest chip tester, will announce results on July 25. Analysts are generally expecting Singapore companies to turn in solid interim earnings, although some of this could have already been priced into stock prices. 'Expectations of better April-June earnings reports are expected to underpin continued optimism in the market,' said Westcomb Financial Group in a note last week.

Apart from the companies reporting their interim results, another 95 listed firms will be reporting results for the full financial year ended June 2007.