Epure International - Improving margins and stronger balance sheet

Epure's 1Q09 net profit of Rmb40.7m (+32.4% yoy) was within expectations. Though 1Q09 accounts for only 15% of our FY09 forecast, there is no cause of concern due to the lumpy nature of EPC earnings. Gross margins climbed to 35.4% in 1Q09. Balance sheet strengthened as net cash shot up to Rmb505.9m from Rmb381.3m in 4Q08. Management expressed a positive outlook for the water industry. We have kept our forecasts intact. However, we roll forward our P/E target to CY10 and peg it at 10x (from 8x) to reflect an industry-wide re-rating, raising our target price to S$0.52 from S$0.37. Maintain Outperform.

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