Initiate coverage with a BUY at fair value estimate of S$0.44. The stimulus package, announced by the PRC Government in November, indicated that total investment in the water and sewage treatment market would be over RMB 1 Trillion Yuan for the period, testimony to the governments aim at tackling the water issues faced by the country. We believe that water infrastructure investments should see renewed demand and that Epure is poised to benefit from this given its strong industry track record, good cash flows and strong R&D capabilities.
Water “crisis” in PRC. The country is currently faced with a host of water issues that needs to be addressed. Water scarcity, water pollution and low levels of wastewater reuse have led to a severe shortage of water. Demand for water has been rising as well due to the rapid urbanization taking place.
Government’s investment in water infrastructure. The PRC Government has, in November 2008, announced a stimulus package directed at a few industries. The water sector is one of the industry groups to benefit from this given an indication of approximately RMB 1 trillion in investment on water and sewage treatment market.
Income stream diversification. The acquisition of Hi-Standard Water Treatment Equipment Co. Ltd (“HSWTE”) in July 2008 as well as the BOT projects should provide for a more diversified income stream in terms of sales of environmental equipments and the collection of water tariffs for the BOT projects. HSWTE has an orderbook of approximately RMB 160million of which most of it should be recognized this year. The BOT projects should only contribute to revenue in FY2010.
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