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Broker's Take: OCBC keeps 'hold' on United Envirotech at S$1.43 fair value

Tuesday, October 14, 2014 - 12:29
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OCBC Investment on Tuesday kept its "hold" rating on United Envirotech at a fair value at S$1.43 - PHOTO: REUTERS

OCBC Investment on Tuesday kept its "hold" rating on United Envirotech at a fair value at S$1.43, preferring a wait-and-see approach until it sees the water treatment firm make more investments, which it said should increase the company's recurring income stream.

United Envirotech late last week said it had formed a 49:51 joint venture with Chengdu Xingrong Investment Co, a state-owned enterprise listed in the A-share of the Shenzhen Stock Exchange.

The new partnership will provide engineering, procurement and construction services using United Envirotech's membrane technologies and membrane products; it will also undertake investments in water treatment projects in western China.

But United Envirotech said the joint venture's first block of projects which will start immediately and be completed by end 2015, would not have any material impact on its FY15 net tangible assets or earnings per share. It will only enjoy a share of the joint venture's profit in FY16, plus S$60 million worth of membrane sales.

"United Envirotech's share price did not react positively to the news. Instead, we suspect the market is more interested in knowing the progress of a potential acquisition of shares in the company, which we understand is unrelated to Chengdu Xingrong," said OCBC.

At 12.07pm on Tuesday, the stock was trading at S$1.275, down 3.5 Singapore cents or 2.7 per cent.