When you step out of your home and see clean streets cleared of rubbish and debris, do you stop and ponder on what invisible hands made this possible?
Or when you turn on the tap for a glass of clean drinking water, have you ever wondered at the water purification membrane and technology that permitted millions to have their daily cups of coffee, tea, water, soup, etc.?
There are many companies that have delivered these services and more into our daily lives and most are situated right here in Singapore. In fact, some of these companies are not only operating in Singapore, several are listed on the Singapore Stock Exchange.
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While the sustainability, waste management, pro-environment, recycling investment themes are slowly gaining recognition in Asia, awareness and investor interest are still not at the level seen in the more developed economies.
Over time, we believe that investor awareness will rise and demand for companies with greater emphasis on these areas will become a part of any diversified asset portfolio. Having a focus on “sustainability” does not diminish or compromise on profitability as some companies have successfully merged their strategies and investments in sustainable businesses into growth businesses over time.
Investment, be it into a higher education degree or into million dollars properties, requires a thorough understanding of the asset as well as a longer term commitment to realize the fruits of the investment.
Taking a longer term investment horizon also helps to even out any near term volatility which could result in wide share price fluctuations.
As such, for an investor looking to invest in a company with a “sustainability” focus, it is necessary to research and understand the company and to also take a longer investment viewpoint as some of these projects may need a gestation period before delivering on earnings.
Sembcorp Industries Ltd
Fair Value Estimate: S$6.42
Sembcorp Industries Ltd, with a market capitalisation of more than S$9.4 billion, is involved in a wide range of activities including the provision of integrated services involving power, gas, steam, water, wastewater treatment and other services.
Last year, it also expanded its water business in China’s Liaoning Province with two new wastewater treatment projects in industrial parks in Panjin City. We see the initial phases of these projects as incremental expansions in China, adding about 10 per cent to the group’s total industrial water capacity in the country. The group’s utilities business in China has seen good growth over the years, with net profit increasing from S$6 million in 2009 to a forecasted S$50 million this year.
With the expertise to provide utilities like energy, water and wastewater treatment which will be in demand due to China’s growth, we are optimistic on the long-term prospects of China as a key market for the group. Moreover, SCI has expertise on sustainable living with a focus on environmental protection, which should be in demand in China due to the country’s environmental issues linked to its rapid industrial growth.
United Envirotech Ltd
Fair Value Estimate: S$1.36
United Envirotech Ltd (UEL), with a market capitalization of S$703 million, provides solutions based on membrane technology, largely in the area of environmental health and safety. Reflecting the recent strong focus on environmental safety and health, the stock has also performed well. Since early 2012, the stock has appreciated some 260 per cent from 32.5 cents to S$1.18 currently.
In January 2014, it announced that it has secured two more water treatment projects in China. The first contract is to provide total water solution to a textile industrial park in Guangan, Sichuan Province, via a 90-10 JV with the park owner. The first phase of the BOT (build, operate, transfer) project – worth RMB160m (S$33m) – will commence immediately and be completed by end Aug 2014. The second is a RMB250m (S$52m) EPC (engineering, procurement, construction) contract to build a 60k m3/day underground membrane bioreactor to treat wastewater from a textile industrial park in Gaoyang, Hebei Province. UEL expects to commence construction immediately and complete the project by end 2014.
Fair Value Estimate: S$12.25
Keppel Corporation’s key businesses are in offshore and marine, infrastructure, property investment and development, telecommunications and transportation, energy and engineering. Recently, it announced that it has won a contract worth US$650m to build three high-spec KFELS B Class jack-up rigs from a new customer Fecon International. According to Keppel Corporation, Fecon (backed by experienced industrial entrepreneur A.P. Dobrov) is a new player to the offshore oil and gas industry, and is targeting the growing offshore drilling markets of Africa, Middle East, and Southeast Asia.
As the rigs are scheduled to be delivered progressively within 2H16, the contract is not expected to have any impact on FY14 earnings. Nevertheless, we estimate that the latest win will bump up its order book to US$14.9b with visibility extending out to 2019.
Carmen Lee is the head of OCBC Investment Research. This article was first published in The Straits Times on Sat 1 March 2014, page C13, for SGX-ST Money’s monthly series.