United Envirotech earnings forecast cut as costs escalate

Will delay growth to FY15.

DBS Group Research has cut its FY14/15F earnings forecast for United Envirotech on higher costs and slower EPC exeuction, the research firm said as United Envirotech released its latest earnings results.

Treatment contribution has grown to 62.5% of group EBITDA in 1HFY14, up from 42.3% in 1H13. As a result of higher Treatment sales, gross margins expanded to 46.2% in 2Q14 vs 36% in 2Q13.

However, DBS noted higher operating costs and higher finance expenses due to CB and medium term notes have impacted the bottomline. Net margins slipped to 13.7% in 2Q14 from 15.5% a year ago. 1H14 net profit only formed 30% of our previous full year estimate.

United Envirotech also won Rmb451m EPC contracts YTD vs DBS' Rmb400m forecast.

"However, recognition has been slower than expected," said DBS, noting positively though that the firm is currently bidding for contracts worth Rmb700m.

"More wins and faster execution will be positive to FY15F."

DBS also foresees an earnings upside for United Envirotech if Memstar manages to post better than expected earnings accretion.