Sanli Environmental Limited Company note

5 July 2017

Unrated New Contracts Provide FY2018 Visibility

Current Price S$0.305 ▪ S$26m of contracts boost order book to S$125.1m. Sanli Environmental
Limited announced on 4 July 2017 four new contracts with a combined value
Fair Value n.a. of S$26.0m. Sanli’s order book is now equivalent to close to two years of
Up / (downside) n.a. revenue. We estimate that approximately S$60m of its existing order book
will be recognized in FY18 ending March 2018, with future contracts
Stock Statistics contributing another S$5m of revenue also in FY18. What’s notable is that
the four contracts included at least one private sector project of S$3m to
Market cap S$87.4m S$4m in value. We traced from GeBiz three PUB projects awarded in June
52-low S$0.300 2017 with total estimated value of S$22.4m.
52-high S$0.405
Avg daily vol 3,035,361 ▪ Focus on high technical content projects. We noted that Sanli’s historical
No of share 286.7m gross margins have been around 18% to 20%. Coupled with cost control at
Free float 12.3% the corporate level, net margin has ranged from 9% to 11%. Public sector
water projects often include civil engineering works, e.g. sewerage
construction and pipe laying. In Sanli’s case, it has been securing contracts
Key Indicators with higher engineering and technical content, such as the supply
membrane and ozone filtration systems, which may explain for its margins.
ROE 17F 59.0%
ROA 17F 2.0% ▪ Top of its class – highest tender win rate. Tracking PUB tenders on GeBiz
P/BK 18F 3.36x over the last four months, we noted that Sanli has achieved a relatively high
Net gearing 17F 94.9% win rate of 30.8% or four out of 13 participated tenders. Among competing
bidders with the same BCA registered workheads as Sanli, Sanli’s track
Major Shareholders
record is impressive as most other bidders have won at most one or two
conracts during the same period. In terms of total value of contracts secured,
Typha Holdings 54.5% Sanli also stands out as the winner. To further improve its competitiveness,
Fullerton Fund 8.0% Sanli is expanding its workshop to raise the proportion of internally produced
Investments content in its products and services. Thus far, PUB has provided a list of
upcoming tenders that we estimate to be potentially worth S$100m or more.
Historical Chart ▪ Strong pipeline of water projects to provide longer term opportunities.
Spending on water infrastructure is expected to nearly double to S$800m
0.4
per annum during 2017 to 2021. Pipeline projects include a new water
0.4 reclamation cum NEWater plant in Tuas as part of the Deep Tunnel
Sewerage System Phase 2 (construction to commence in 2H 2018), the
0.3
redevelopment of the Kranji Water Reclamation Plant (from 2030 onwards)
0.3 and the construction of the fourth and fifth water desalination plants in
0.2
Singapore, to be ready by 2020. To better capitalise on these opportunities,
40 Sanli can aim to take on larger projects with its stronger balance sheet today.
20 ▪ Competition poses key risk. One potential risk is that competitors may
slash prices, leading to either margin compression or lost contracts for Sanli,
0
06/17
especially when Sanli’s margin is now more transparent. FY18 profitability
may also be affected by IPO expenses. As this is a preliminary look at Sanli,
Source: Bloomberg
we do not provide a rating and valuation at this juncture, but note that Sanli’s
peers trade at P/E multiples of up to more than 20 times.
Key Financial Data
(S$ m, FYE Mar) 2014 2015 2016 2017F 2018F
Sales 19.41 37.35 57.26 65.07 68.32
Gross Profit 4.0 6.4 11.2 11.7 12.3
Net Profit 1.8 3.3 5.9 6.2 4.0
EPS (cents)* 0.66 1.21 2.21 2.29 1.49
Liu Jinshu EPS growth (%) NA 84.6 82.0 3.5 (34.7)
PER (x) 46.3 25.1 13.8 13.3 20.4
(+65) 6236-6887 NTA/share (cents)* 1.45 2.24 3.96 3.32 9.08
[email protected] DPS (cents)* 0.1 0.3 0.3 2.8 0.4
www.nracapital.com Div Yield (%) 0.5 1.1 1.1 9.2 1.5

*Adjusted for 286.7m shares outstanding. Source: Company, NRA Capital forecasts
Sanli Environmental Limited
Company Background
An environmental engineering company. Sanli Environmental Limited’s
expertise is in the design, supply, delivery, installation, commissioning,
maintenance, repair and overhaul of mechanical and electrical (M&E) equipment
as well as instrumentation and control systems in wastewater treatment plants,
water reclamation plants, NEWater plants, waterworks, service reservoirs,
pumping stations and incineration plants.

Design and build, operation and maintenance of treatment process systems.

Sanli’s business can be segmented into two segments – Engineering,
Procurement and Construction (EPC), and Operations and Maintenance (O&M).
Under the EPC segment, Sanli’s solutions include the design and build of various
treatment process systems for raw water or wastewater treatment. The O&M
segment is where Sanli provides both corrective and preventive maintenance
services for clients. The EPC and O&M segments accounted for 65.7% and 34.3%
of revenue of S$50.4m for 9M2017 ended December 2016.

Figure 2 will show that Sanli’s projects include the installation and maintenance of
filtration systems, membrane trains and M&E equipment. Sanli also provides
solutions for the treatment of refuse in incineration plants.

Major customers include the Public Utilities Board (PUB) and National
Environment Agency (NEA). The PUB accounted for 85.7% and 99% of revenue
for FY2016 ended March 2016 and 9M2017.

Figure 1: Pictorial Representation of Sanli’s Projects

Source: Extract of company website

page 2
Sanli Environmental Limited
Figure 2: Key Projects and Milestones

Award Date or Contract

Contract Period Description Client Value Remarks
Secured five contracts with aggregate value of
29-March-2006 Incorporation of Sanli M&E Engineering Pte. Ltd. NA NA
S$1.0m within three months of incorporation.
2006 Refurbish electrical system at Kranji Water Reclamation Plant (WRP) PUB NA First PUB contract as main contractor.
2007 Subcontractor for EPC services at Serangoon Reservoir NA S$3.5m
First contract from Agri-Food & Veterinary
2008 Supply, delivery, testing and commissioning of seawater pumps AVA NA
Authority
2009 Enhance and upgrade of a used water pumping installation PUB NA
Fabricate submerged tanks, header pipes and air distribution pipes in First overseas contract. Secured total new
2009 NA NA
Sri Lanka. contracts worth more than S$10.0m in 2009.
Overhaul of centrifugal pumps, disintegrators and related equipment,
2010 PUB S$1.6m Breakthrough into operations and maintenance.
and maintenance works.
Design and construction of an airlift membrane bioreactor system at the
2010 NA NA
Nestle milk processing factory in the Philippines
Maintenance and servicing of screening, sludge, grit and related Started stationing staff at customer premises to
2011 PUB S$3.7m
equipment at all PUB WRPs in Singapore carry out operation and maintenance works
2012 Refurbishment of vibrating conveyor systems at Tuas incineration plant. NEA S$2.2m First contract from NEA and foray into solid waste
Dec 2013 - Dec Replacement of switchboards, water and sludge treatment, process
PUB NA First contract in Malaysia
2015 equipment and ancillaries works at the Johor River Waterworks (JRW)
April 2014 - June Design, supply, installation, testing and commissioning of wastewater KTC = KTC Civil Engineering & Construction Pte
KTC NA
2016 treatment plant Ltd
June 2014 - Renewal of equipment and upgrading of various used water pumping
PUB NA
October 2016 installation
October 2014 - Refurbishment of vibrating conveyor systems at Tuas South
NEA S$11.5m NEA = National Environment Agency
October 2017 incineration plant.
Nov 2014 – Oct
Replacement of ozonation systems at Bedok Waterworks PUB NA
2016
Jan 2015 – Jan Servicing and maintenance of screening, sludge, grit and related
PUB S$19.5m Obtained L6 grading from BCA in 2015
2018 equipment at various WRPs
May 2015 – Replacement of ultrafiltration membranes at Chestnut Avenue
PUB S$15.4m
November 2017 Waterworks.
June 2015 – June Replacement of pump sets, associated auxiliary equipment and
PUB S$10.7m
2017 pipelines at Jalan Eunos Booster Station
12-August-2015 Equipment Replacement at Choa Chu Kang Waterworks PUB S$11.2m
28-September-
Replacement of Phase 1 and 2 M&E Equipment at Jurong WRP PUB S$9.8m
2015
28-March-2016 Civil, Mechanical and Electrical Works at Lower Seletar Waterworks PUB S$5.7m
Mar 16 – Feb 17 Maintenance of ozone generators for ozone plant at JRW PUB NA
April 2016 – April Supply, delivery, installation and commissioning of membrane trains at
PUB NA
2018 Chestnut Waterworks
June 2016 – Joint venture with Chye Joo Construction Pte Ltd.
Process upgrading at Choa Chu Kang Waterworks PUB S$114.8m
December 2018 Sanli's share is about 40% or S$40m
August 2016 –
Maintenance of wastewater treatment plant at Bulim bus depot Tower NA Tower =Tower Transit Singapore Pte. Ltd.
July 2017
01-September- Proposed Electrical, Instrumentation, Control and Automation Works for
PUB S$2.5m
2016 Murnane Pipeline Project
Replacement of 2 Nos. of Pumpsets at Kranji I and 6 Nos. of Pumpsets
17-October-2016 PUB S$4.5m
at Tengeh Pumping Stations
Dec 16 – Dec 20 Maintenance of ultraviolet and ozone disinfection system at JRW PUB
13-February-2017 Replacement of M&E Equipment at Ulu Pandan WRP PUB S$14.8m
Supply, Delivery, Installation and Commissioning of Membrane Train at
16-March-2017 PUB S$2.0m
Lower Seletar Waterworks
Replacement of 6.6kV and 400V Diesel Generators at 9 Catchment As of 1 May 2017, Sanli has an order book of
02-June-2017 PUB S$7.9m
and Waterways Installations S$105.8m. These contracts with a total value
15-June-2017 Maintenance of M&E Equipment at Changi WRP PUB S$7.9m of S$22.4m were awarded after 1 May 2017. As
of 4 July, Sanli’s order book stands at
Replacement of Ultrafiltration Membranes and Addition of S$125.1m, including S$3m-4m of private
29-June-2017 PUB S$6.7m
Membrane Cassettes at Choa Chu Kang Waterworks secotr orders

Source: GeBiz, PUB, Company Prospectus

page 3
Sanli Environmental Limited
Recent Order Wins Indicate Forward Visibility into FY18.
Order book of S$125.1m as of 4 July 2017. Due to Sanli’s rapid pace of contract
wins during the last few years, it has successfully grown annual revenue from
S$19.4m in FY14 to S$57.3m in FY16, at a CAGR of 71.8%. For 9M2017 ended
31 December 2016, revenue grew by 18.3% year-on-year to S$50.4m. Based on
unfulfilled orders as of 31 December 2016 and new orders obtained up to 1 May
2017, Sanli has an order book of S$105.8m as of 1 May 2017, of which more than
50% or more than S$52.9m is expected to be fulfilled in FY2018. Following the
addition of S$26.0m of new contracts, Sanli’s order book has expanded to
S$125.1m as of 4 July 2017.

S$26.0m of new orders secure revenue base for FY2018. Sanli’s contracts
usually take about one to three years to fulfil. Assuming a revenue split of
27%/63%/10% across three years, we can expect the new contracts to add
S$7.0m of revenue to that of FY18 (ending March 2018). All in, Sanli’s order book
means that the company has already secured approximately S$60.0m of revenue
for FY2018.

Figure 3: Revenue and Order Book More than 50%

S$m expected to be
160.0 recognized in
FY2018.
125.1
120.0 105.8

80.0
57.3
50.4
37.3 42.6
40.0 19.4

0.0
FY2014 FY2015 FY2016 9M2016 9M2017 Order Book Order Book
as of 1 May as of 4 July
2017 2017
S$105.8m of order book as of 1 May 2017 – S$6.7m of revenue recognized in May and June + S$26.0m
of new contracts = S$125.1m of order book as of 4 July 2017

Source: GeBiz, Company Prospectus, NRA Capital

One of leading firms in its class with the highest recent win rate. Sanli is
registered with the Building and Construction Authority for the provision of
construction related goods and services under the ME02, ME05, ME11 and SY08
workheads. We filtered the GeBiz database for PUB contracts under these
workheads and derived a list of 41 contracts that were either awarded in the last
one month or whose tenders were closed in the last six months. Of the 21
contracts awarded for a total value of S$72.2m, Sanli has the highest win rate,
winning four projects with a total contract value of S$24.4m, including one contract
awarded in 16 March 2017. If we take into consideration only tenders that Sanli
has participated in, the win rate rises to 30.8% or 4 out of 13 participated tenders.

Figure 4: Registered Workheads

Workhead Description Grade Tender Capacity

ME02 Building automation, industrial and process control systems L4 S$6.5m
ME05 Electrical engineering L5 S$13.0m
ME11 Mechanical engineering L6 Unlimited
SY08 Mechanical equipment, plant and machinery L3 S$4.0m

Source: Company prospectus

page 4
 Sanli Environmental Limited
Figure 5: Tenders Won by Sanli (16 March – 29 June)

Contract No of Lowest Scheduled

Award Date Reference Description Value Bids Bid? Min Bid Max Bid Rate
Replacement of Ultrafiltration Membranes and
PUB000ETT17000072
29-Jun-17 Addition of Membrane Cassettes at CCK S$6.69m 8 Yes S$6.69m S$8.07m NA
/ WSP-PW/33170069
Waterworks
PUB000ETT17000016 Maintenance of M&E Equipment at Changi Water
15-Jun-17 -17% 10 4th -23.93% 5% S$9.5m
/ WRP/33170005 Reclamation Plant
PUB000ETT16000313 Replacement of 6.6kV and 400V Diesel
2-Jun-17 / PUB000/CW- Generators at 9 Catchment and Waterways 7.87 6 2nd S$5.3m S$11.68m NA
RC/33160286 Installations
PUB000ETT16000305 Supply, Delivery, Installation and Commissioning
16-Mar-17 S$1.99m 9 Yes S$1.99m S$2.99m NA
/ WSP-PW/33160310 of Membrane Train at Lower Seletar Waterworks
Total S$24.4m

Bids may either be a quantum value or a percentage adjustment from scheduled rates provided by tender.
Source: GeBiz

Figure 6: Tenders Participated by, But NOT Awarded to Sanli (16 March – 29 June)

No of Winning Scheduled
Award Date Reference Abbreviated Description Winner Bids Bid Min Bid Sanli's Bid Max Bid Rate
PUB000ETT17000051
29-Jun-17 Electro-Chlorination Facility Ace Water 11 S$5.96m S$5.96m S$8.79m S$11.95m
/ WSP-PW/33170039
PUB000ETT17000015 Supply, Delivery, Installation and
22-Jun-17 / PUB000/WSP- Commissioning of MEICA M-Stars 7 S$0.60m S$0.57m S$0.63m S$0.99m
PW/33170006 Equipment …
PUB000ETT17000058 Term Maintenance of Ozone Pro-Ace
15-Jun-17 8 -40.8% -45.2% -32.8% -4% S$0.7m
/ WSP-PW/33170037 Plant and Equipment at Power
PUB000ETT16000298 Maintenance of Plant and -42%/- -42%/- -30.5%/- S$3.2m /
24-May-17 JEL Maint. 13 0%/-3%
/ WSP-NW/33160297 Equipment at Kranji NEWater F.. 42% 42% 20.5% S$4.1m
PUB000ETT17000029 Supply …Filtrate Pump and … S$0.218
4-May-17 Ace Water 10 S$0.22m S$0.327m S$0.57m
/ WSP-NW/33170017 Backwash Pumps, Caustic… m
PUB000ETT16000309 Supply…Chemical Dosing Flotech
4-May-17 8 S$0.84m S$0.84m S$1.25m S$2.34m
/ WSP-PW/33160318 Systems at Woodleigh… Controls
Indat
PUB000ETT16000316 Supply, Delivery, Installation and
20-Apr-17 Engineeri 8 S$0.66m S$0.24m S$0.74m S$1.33m
/ WSP-PW/33160322 Commissioning of M&E…
ng
PUB000ETT17000009 Maintenance Services of Active,
12-Apr-17 Digo Corp 8 -40.1% -40.1% -6% -6% S$5.0m
/ CW-RC/33160331 Beautiful and Clean Waters…
PUB000ETT17000011 Supply… Ammonium Sulphate
17-Mar-17 / PUB000/WSP- Dosing System at Pulau Tekong Hyrax 3 S$0.5m S$0.5m S$1.02m S$1.02m
PW/33160320 Waterworks
Total S$16.4m

Source: GeBiz

Figure 7: Tenders NOT Participated by and NOT Awarded to Sanli (16 March – 29 June)

Award Date Reference Description Winner Awarded Value

PUB000ETT1600030
Construction of Chlorine Contact Tank and Diversion of Residual
23-Jun-17 4 / PUB000/WSP- Memiontec S$18.62m
Streams to Sewers at Bedok Waterworks
PW/33160316
PUB000ETT1700001
22-Jun-17 8 / PUB000/WSN- Supply and Delivery of Large Water Meters for Year 2017 to Year 2018 Multiple Suppliers S$5.3m
PW/33170013
PUB000ETT1600027
12-Jun-17 Maintenance and Repair of Water Features at Marina Barrage Hitachi Aqua-Tech S$0.59m
4 / CW-RC/33160285
PUB000ETT1600031
Supply of Services for Real-Time Monitoring of Storm Water Flow in Oneberries
24-May-17 0 / PUB000/CW- S$2.5m
Box Culverts / Closed Drains Technologies
DD/33160317
PUB000ETT1600030
22-May-17 2 / WSP- Maintenance of Instrument and Control Equipment at Johor Plants Munseh Engineering S$2.7m
PW/33160214

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Sanli Environmental Limited
PUB000ETT1700002
M-Stars Engineering
12-May-17 3 / WSP- Reconditioning of Filters at Woodleigh Waterworks S$0.1m
& Construction
PW/33170012
PUB000ETT1600030 Maintenance and Servicing of Supervisory Control and Data Acquisition
28-Apr-17 7 / PUB000/WSP- (SCADA) and Programmable Logic Controllers (PLC) at various Multiple Suppliers S$1.23m
PW/33160311 Waterworks, NEWater Factories and Outstations
PUB000ETT1600029
Powersoft
21-Mar-17 7 / PUB000/CW- Enhancement of Lighting System at Pandan Dyke S$0.42m
Engineering
RC/33160307
Total S$31.4m

Source: GeBiz

Figure 8: Value of PUB Contracts Won (16 March to 29 June)

Sanli 24.44
Memiontec 18.62
Multiple Suppliers 6.51
Ace Water 6.18
JEL 4.23
Digo Corp 3.00
Munseh 2.68
Oneberries 2.50
Flotech 0.84
M-Stars 0.70
Indat 0.66
Hitachi Aqua-Tech 0.59
Hyrax 0.50
Powersoft 0.42
Pro-Ace 0.38
0.00 5.00 10.00 15.00 20.00 25.00 30.00
S$m

Sanli won four contracts during the last four months while Ace Water and M-Stars
won two contracts. The other winners won one contract each on average.
Source: GeBiz, NRA Capital

Active tender participation to help fuel growth. Among the 19 unawarded

tenders that have closed, Sanli has submitted bids for 13 of them. These 13
contrcts have cumulative minimum bids of S$37.8m. Sanli has the lowest bid for
two of them, bidding a total of S$3.25m for them. Sanli may secure more contracts
as PUB awards contracts based on multiple factors such as track record and
quality, and not necessarily always to the lowest bidder. There is probably a
scoring system in place. We estimate that Sanli is also close to the lowest bidder
in another nine to ten projects. All in, Sanli participated in 26 out of 41 or 63% of
tenders.

Increasing insourcing to improve tender competitiveness. Sanli’s office and

workshop is currently located at 15 Kian Teck Drive, occupying land area of
1,297.4 sqm. The company bought the property in 2014, which has a lease of 30
years commencing from 16 March 1995.

In February 2017, Sanli exercised an option to purchase 28 Kian Teck Drive for
S$4.0m, of which S$0.4m has been paid. The property has a 30-year lease
commencing from 1 February 2012 and land area of 2,266.7 sqm. The company
plans to use S$2.92m out of S$9.72m to partially fund the acquisition and
renovation of the property, with the balance to be financed via bank loans.

The management has clarified at a recent briefing that Sanli will continue to use
both 15 and 28 Kian Teck Drive with the new property being used as a workshop
so that more parts can be fabricated in-house, thus leading to cost savings and
higher competitiveness in future tenders.

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Sanli Environmental Limited
Figure 9: Tenders Participated by Sanli and Pending Award (16 March to 29 June)

Closing Lowest Lowest Sanli's No of Scheduled

Tender Reference Abbreviated Description Date Bidder Bid Bid bidders Rate
PUB000ETT17000137 / WSP- Disposal of Dewatered Sludge Cakes and Minor
8-Jun-17 Wah Song S$3.2m S$3.9m 2
PW/33170091 Works at Johor River Waterworks
PUB000ETT17000117 / WSP- Maintenance of Plant and Equipment at Choa
18-May-17 Ace Water -45% -25% 13 S$1.8m
PW/33170103 Chu Kang Waterworks Membrane Plant…
PUB000ETT17000092 / WSP- Replacement of Aged Treatment Process 18-May-
Sanli S$0.56m S$0.56m 8
NW/33170080 Equipment at Variable Salinity Plant 17
Supply, Installation and Commissioning of
PUB000ETT17000107 /
Switchboards, Generators and Ancillaries at 18-May-17 Cytech S$0.77m S$0.87m 6
PUB000/WSN-PW/33170089
Water Supply (Network) Installations
Replacement of Low Lift Pumpsets,
PUB000ETT17000093 /
Bandscreens, Barscreens and Auxiliary Systems 4-May-17 Electromech S$8.5m S$8.51m 7
PUB000/WSP-PW/33170076
at Johor River Waterworks
PUB000ETT17000074 / Supply and Delivery of Screw Pump Spare Parts
6-Apr-17 Effektiv -38.5% -27% 6 S$0.8m
PUB000/WRP/33170002 to Kranji Water Reclamation Plant
Replacement of Sedimentation Tank Scrapers,
P+B9:Q12UB000ETT17000075
Washwater Systems, Electrical Switchboards and 25-May-17 SEC(S) S$6.33m S$10.9m 12
/ WRP/33170050
other Ancillary M&E Equipment at Jurong….
PUB000ETT17000057 / Jurong WRP Phase 4 Expansion (Contract 3 -
13-Apr-17 Sanli S$2.69m S$2.69m 8
WRP/33170046 In-Plant Power Supply)
PUB000ETT17000030 / WSP- Replacement of Chemical Dosing System, Air
16-Mar-17 Yamato S$3.0m S$3.67m 10
PW/33170023 Compressor System and Other Auxiliaries at..
Transfer of Powdered Activated Carbon to Lower
PUB000ETT17000031 / WSP- Peirce Reservoir Pumping Station & Operation
23-Feb-17 Mei De -46% -43% 11 S$0.96m
PW/33170020 and Maintenance of Powdered Activated Carbon
Dosing Facilities
PUB000ETT17000033 / Term Maintenance of Ozone Plant and
2-Mar-17 Ace Water -38% -27% 5 S$0.152m
PUB000/WSP-PW/33170024 Equipment at Bedok Waterworks
PUB000ETT17000021 / WSP- Provision of High Tension Gas Insulated
16-Feb-17 Cyclect S$0.93m S$0.99m 10
PW/33170019 Switchgears and Power Cables
PUB000ETT17000019 / Maintenance of Influent and Effluent Pumping
23-Feb-17 Marketech -19.8% -13% 10 S$4.5m
PUB000/WRP/33170007 Systems at Changi Water Reclamation Plant
Total S$31.7m

Source: GeBiz

Figure 10: Tenders NOT Participated by Sanli and Pending Award (16 March to 29 June)

Scheduled
Tender Reference Abbreviated Description Closing Date Lowest Bid Rate
PUB000ETT17000153 / Supply and Delivery of Brass Ball Valves and Brass
WSN-PW/33170135 Tailpieces for Year 2017 29-Jun-17 S$0.44m
PUB000ETT17000134 / Supply and Delivery of Bearings to various
WRP/33170113 Installations of the Public Utilities Board 8-Jun-17 -28% S$1.2m
PUB000ETT17000135 / Water Mains Flushing Services for Network Services
WSN-PW/33170008 Division for Year 2017 to 2020 8-Jun-17 -39.8% S$4m
PUB000ETT17000122 / Supply, Delivery, Installation and Commissioning of
PUB000/WSP-PW/33170092 Online Analysers at Pulau Tekong Waterworks 25-May-17 S$0.2m
PUB000ETT17000112 / Supply and Delivery of 15mm Inductive Water Meters
WSN-PW/33170098 with Sensing Elements 18-May-17 S$0.255m
PUB000ETT17000049 / Improvement Works on Knife Gate Valves at Influent
WRP/33170036 Pumping Station of Changi Water Reclamation Plant 30-Mar-17 S$1.94m
Total S$6.1m

Source: GeBiz

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 Sanli Environmental Limited
Increased Spending on Water Infrastructure as Growth Driver
Spending on water infrastructure to nearly double. Longer term, we reckon
that Sanli will benefit from increased water infrastructure spending by the
Singapore government. Singapore spent about S$7 billion or about S$430m every
year in water infrastructure from 2000 to 2015. Spending is expected to increase
to S$800m every year between 2017 and 2021 to fund major investments in water
plants, pipes and pumps. 1

The accelerated spending will allow Singapore to cater to rising demand for water
while raising water self-sufficiency at the same time. Currently, water demand in
Singapore is about 430 million gallons a day (mgd). Demand is expected to almost
double by 2060 with NEWater and desalinated water targeted to make up for 85%
of supply, up from 65% today. 2

Pipeline projects include the construction of the Tuas Water Reclamation Plant,
which will also house a NEWater factory, as part of the Deep Tunnel Sewerage
System (DTSS), the construction of three desalination plants and the
redevelopment of the Kranji Water Reclamation Plant. Finally, contract
opportunities will also come from the regular upgrading and maintenance of the
existing infrastructure, such as the eight water treatment plants, Changi Water
Reclamation Plant, and five NEWater plants.

Figure 11: Singapore Water Infrastructure

Requires regular upgrading

and maintenance

Three more desalination

plants are being built

Likely to add Tuas Newater Plant

(part of Tuas WRP) Ulu Pandan and Jurong WRP are being
replaced by the Deep Tunnel Sewerage
System (DTSS)
Source: https://www.pub.gov.sg/PublishingImages/PUB_11_WaterCostDiagram_FA_01.png

1 http://www.straitstimes.com/singapore/water-is-critical-to-nations-survival-says-dpm-teo-in-outlining-singapores-
strategic
2 https://www.pub.gov.sg/watersupply/singaporewaterstory

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Sanli Environmental Limited
Figure 12: Singapore’s NEWater and Desalination Infrastructure

Water Reclamation Plants are not shown in this graphic.

Source: Business Times, February 2017

Figure 13: DTSS Phases 1 and 2

Kranji WRP to be
redeveloped from 2030
onwards

Phase 2 to complete by 2025, Phase 1 completed in 2008

comprising of tunnels, Tuas Water
Reclamation Plant and NEWater
Factory

Source: PUB

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 Sanli Environmental Limited
DTSS Phase 2 to provide significant opportunities. The DTSS is an overhaul
of the entire sewerage system in Singapore, where used water from across
Singapore is collected and treated at three centralised water reclamation plants.
Benefits include integrated water and solid waste treatment to facilitate energy and
resource recovery, 50% reduction in land use and increased overall water
recycling rate from 30% to 55% of total water use.

Phase 1 was implemented from 2000 to 2008 at a cost of S$3.4 billion and
included the Changi Water Reclamation Plant (WRP) which cost S$2.2 billion or
65% of total costs. Phase 2 is expected to cost S$6.5 billion, of which we estimate
the Tuas Plant to cost about S$3 billion and replace the current Ulu Pandan and
Jurong WRPs.

PUB has awarded the detailed design and construction supervision of the Tuas
Plant to CH2M HILL Singapore Pte Ltd at a cost of S$163m in February.
Construction of the Tuas WRP is expected to commence in the second half of
20183 and we can expect multiple construction tenders for civil, mechanical and
electrical engineering works over the next 12 to 24 months. Works that Sanli can
bid for may range from the M&E equipment to process equipment, e.g. tanks,
membrane, filters, and even the sludge processing equipment. Given that Sanli
has previously worked on contracts with the NEA, it can even take in the tender
for components of the integrated waste incineration plant.

Figure 14: Contract Opportunities at the Tuas WRP

Source: PUB

Desalination plants may provide some private sector opportunities.

Singapore’s third desalination plant is being constructed by HSL Constructor at a
cost of S$217m and completion is expected within this year. Keppel Infrastructure
Holdings will build, own and operate the Marina East desalination plant.
Construction started on 29 June and will be completed by end January 2020. 4

PUB has called for proposals for the development of a fifth plant to be located on
Jurong Island, to be ready by 2020. Competing bidders for the fifth plant include
Keppel Infrastructure Holdings Pte Ltd, Sembcorp Utilities Pte Ltd, Tuas Power
Pte Ltd and YTL Power International Berhad. We reckon that the four and fifth
desalination plants may provide business development opportunities for Sanli,
given that the company has been reliant on mainly public sector contracts for
revenue.5

3 https://www.pub.gov.sg/news/pressreleases/CH2MHillSingaporetodesignandsuperviseconstructionofTuasWaterReclamationPlant
4 http://www.channelnewsasia.com/news/singapore/construction-of-singapore-s-4th-desalination-plant-begins-in-8988618
5 http://www.eco-business.com/news/singapore-build-fifth-water-recycling-plant/

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 Sanli Environmental Limited
Maintenance Contracts to Provide Recurring Income
Approximately S$100m of tenders from July to June 2018. We further
extracted a list of open tenders from GeBiz and upcoming tenders from PUB based
on the registered workheads of Sanli. The list of upcoming tenders on the PUB
website includes purchases that were supposed to be made in June 2017 or
earlier. To avoid double counting with tenders that are already on GeBiz, we only
take into consideration upcoming tenders whose purchases are supposed to be
made after June 2017. Using the tender limits as a proxy, we estimate that current
announced upcoming and open tenders have a combined value of up to S$100m.
These are mainly tenders in relation to existing infrastructure such as the Changi
WRP and exclude upcoming tenders from other projects such as the Tuas WRP.

Figure 15: List of Open Tenders and Upcoming Tenders as of end June 2017

As Extracted from GeBiz

Financial
Closing Date Description Category Tender Limit
6-Jul-17 Process Upgrading at Choa Chu Kang Waterworks - Contract 3 - Electro-Chlorination System L5 Up to S$13.0m
13-Jul-17 Replacement of SCADA and Instrumentation Systems at Changi Water Reclamation Plant L6 Unlimited
As Extracted from PUB Website
Financial
Likely Month of Purchase Project Category Tender Limit
July 2017 Maintenance of Odour Control Facilities at PUB Installations (Schedule A & B) L3 Up to S$4.0m
August 2017 Servicing and maintenance of Main Drive Motor Systems at WRP (Schedule A & B) L1 Up to S$0.65m
September 2017 Servicing and Maintenance of Gas Purifiers at Changi Water Reclamation Plant L3 Up to S$4.0m
October 2017 Comprehensive Maintenance of Bar Screens and Ancillaries at Ulu Pandan WRP L3 Up to S$4.0m
October 2017 Supply and Installation of Electrical Materials to various Installations of Public Utilities Board L4 Up to S$6.5m
December 2017 Maintenace of Aeration Blowers for Water Reclamation Plants (Schedules A, B,C, D & E) L4 Up to S$6.5m
December 2017 Servicing and Maintenance of Screening, Sludge, Grit and Related Equipment at various WRP L5 Up to S$13.0m
December 2017 Replacement of M&E Equipment at Jurong Island Sewage Treatment Plant No. 1 and No.2 L5 Up to S$13.0m
January 2018 Overhaul and Maintenance of Dual Fuel Engines at Kranji Water Reclamation Plant L1 Up to S$0.65m
January 2018 Servicing and Maintenance of Turbine Generators at Changi Water Reclamation Plant L2 Up to S$1.3m
February 2018 Membrane Replacement of 15MGD MBR Plant at JWRP (Jurong Water Reclamation Plant) L5 Up to S$13m
April 2018 Maintenance of Gas Engines at Jurong Water Reclamation Plant L2 Up to S$1.3m
April 2018 Servicing and Maintenance of Greasy Waste Treatment Plant at Jurong WRP L3 Up to S$4.0m
May 2018 Operation and Maintenance of Plant and Equipment at Choa Chu Kang Waterworks Treatment Plant L3 Up to S$4.0m
Total Up to S$102m
13 July 2017 closing tender has no tender limit. Hence, we assume a value of S$13.0m or equivalent to the L5 tender
limit. Source: GeBiz, PUB

Longer Term Catalysts

BCA grading upgrades and larger projects. In 2015, Sanli formed a joint
venture with Chye Joo Construction Pte Ltd to undertake a PUB project worth
S$114.8m. We envisage that Sanli will utilize its financial strength post listing to
raise its tender capacity for government projects – due for renewal on 1 April 2018.
Currently, Sanli is not subjected to any tender limit only for mechanical engineering
projects. For other work categories, such as electrical engineering, building
automation, industrial and process control systems, mechanical equipment, plant
and machinery, Sanli is still subjected to tender size limits. Secondly, Sanli can
get itself registered for more types of jobs and thus expand its addressable market.
We also do not rule out further joint ventures to take part in larger projects. Sanli
has set aside S$5.74m as working capital to take on more and larger projects.

Overseas projects. In addition, Sanli has budgeted S$1.06m to set up a business

development department to penetrate and expand in overseas markets such as
Myanmar, Indonesia and Malaysia. Sanli has a track record in executing projects
in developing countries such as Sri Lanka and the Philippines.

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Sanli Environmental Limited
Key Risks
Revenue and growth is dependent on the winning of contracts in tenders.
While Sanli can maximise its chances of securing new contracts by participating
in as many tenders as possible, tenders are competitive. In some tenders, there
are easily more than ten bidders. As such, the failure of Sanli to secure projects
for several quarters can lead to short term fluctuations in revenue and profitability.

Failure to replace S$114.8m Chy Joo-Sanli JV contract may affect growth in

FY19. This contract is being executed from June 2016 to December 2018,
translating to revenue of approximately S$16m to S$20m per annum. If Sanli fails
to find the contracts to replace this project when it winds down in 2018, revenue
for the financial year 2019 ending March 2019 may be affected.

Margins may be affected as competition stiffens. As a public listed company,

Sanli’s margins become visible to its competitors. There is the risk that competitors
may decide to slash margins to secure more contracts. During periods of stiff
competition, margins can be depressed for several years especially if planned
public investments are deferred by the government. Gross margin in FY16 was
19.6%. However, it dropped to 17.9% for the nine months ended December 2016.

Execution risk. Revenue and profitability may also be affected by unforeseeable

circumstances such as project delays and rework.

IPO and business development expenses can be a drag on FY18 profitability.

IPO expenses amounted to S$1.98m. In addition, the company intends to spend
S$1.06 on business development. As such, FY18 profitability will likely be affected
by one-off items.

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Sanli Environmental Limited
Recommendation and Forecasts
Assumptions and forecasts. For the financial year ended March 2017, we
expect full year revenue of S$65.0m, gross profit of S$11.7m and PATMI of
S$6.15m. For 9M2017, Sanli reported revenue of S$50.4m or approximately
S$16.8m per quarter. Therefore, our projection of S$14.7m (similar to that of 4Q
FY16) for 4Q FY17 can be seen as reasonable. Gross margin is assumed to be
18%, similar to the 17.9% for 9M2017.

More than 50% of Sanli’s order book of S$105.8m as of 1 May 2017 will be
recognized in FY18. Including recently awarded contracts, we estimate that Sanli
has already secured around S$60m of revenue for FY18. Hence, we decided to
assume 5% revenue growth in FY18 to S$68.3m, which can be achieved by
securing and starting work on another S$20m to S$30m of projects over the next
nine months. However, PATMI may fall to S$4.0m owing to S$3.0m of assumed
one-off expenses from e.g. IPO and business development costs. Growth may be
higher if larger and more projects are secured. For now, we maintain a prudent
stance.

Peer comparison. Sanli closed at S$0.305 on 4 July. Based on our forecast

PATMI for FY17, Sanli trades at 13.3x P/E. In contrast, peers such as SIIC
Environment and Moya Holdings Asia trade at 11.9x to 46.99x P/E.

Recommendation. In this report, we take a preliminary look at Sanli. However,

we refrain from providing a valuation and rating, but highlight that Sanli’s peers
trade at a wide range of P/E multiples averaging at more than 20x P/E. Catalysts
that can attract a rating include the win of larger contracts that will enhance forward
visibility beyond FY18.

Figure 16: Simple Peer Comparison

Mkt Cap
(S$m) P/E P/Sales P/BV
SIIC Environment Holdings Ltd 1,355 11.89 1.87 0.94
China Everbright Water Ltd 1,313 20.51 2.82 1.00
Hyflux Ltd 428 NA 0.52 0.55
Moya Holdings Asia Limited 280.1 46.99 10.73 2.30
Average 844.0 26.46 3.99 1.20
Sanli 87.4 13.32* 1.34* 3.36**

*Based on FY17 forecast earnings and sales. **Based on FY18 forecast common
equity.
Source: Bloomberg, NRA Capital

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Sanli Environmental Limited
Profit & Loss (S$ m, FYE Mar) 2014 2015 2016 2017F 2018F
Revenue 19.41 37.35 57.26 65.07 68.32
Operating expenses (16.7) (32.9) (49.1) (56.4) (59.1)
EBITDA 2.67 4.50 8.15 8.65 9.17
Depreciation & amortisation (0.3) (0.4) (0.4) (0.5) (0.5)
EBIT 2.4 4.1 7.7 8.2 8.7
Net interest & invt income (0.3) (0.4) (0.6) (0.8) (0.9)
Associates' contribution 0.0 0.0 0.0 0.0 0.0
Exceptional items 0.0 0.0 0.0 0.0 (3.0)
Pretax profit 2.05 3.72 7.19 7.36 4.79
Tax (0.3) (0.5) (1.3) (1.3) (0.8)
Minority interests 0.0 0.1 0.0 0.0 0.0
Net profit 1.77 3.26 5.94 6.15 4.02
Shares at year-end (m) 286.7 286.7 286.7 286.7 286.7

Balance Sheet (S$ m, as at Mar) 2014 2015 2016 2017F 2018F

Fixed assets 5.2 5.1 5.7 5.8 12.8
Intangible assets 0.0 0.0 0.0 0.0 0.0
Other long-term assets 0.0 0.0 0.5 0.5 0.5
Total non-current assets 5.2 5.1 6.3 6.3 13.3
Cash and equivalents 3.3 4.2 6.6 6.8 12.6
Stocks 0.0 0.0 0.0 0.0 0.0
Trade debtors 4.2 3.4 7.0 8.0 8.4
Other current assets 2.4 8.4 8.2 9.3 9.8
Total current assets 9.9 16.0 21.9 24.1 30.8
Trade creditors 4.0 8.7 8.0 10.2 9.2
Short-term borrowings 1.7 1.5 2.8 2.8 2.8
Other current liabilities 1.1 0.8 1.9 1.9 0.1
Total current liabilities 6.8 11.1 12.7 14.9 12.1
Long-term borrowings 4.1 3.5 3.7 5.7 5.7
Other long-term liabilities 0.0 0.0 0.4 0.4 0.4
Total long-term liabilities 4.1 3.5 4.1 6.1 6.1
Shareholders' funds 4.2 6.4 11.4 9.5 26.0
Minority interests 0.1 0.0 (0.0) (0.1) (0.1)
NTA/share (S$) 0.01 0.02 0.04 0.03 0.09
Total Assets 15.1 21.0 28.1 30.4 44.1
Total Liabilities + S’holders' funds 15.1 21.0 28.1 30.4 44.1

Cash Flow (S$ m, FYE Mar) 2014 2015 2016 2017F 2018F
Pretax profit 2.0 3.7 7.2 7.4 4.8
Depreciation & non-cash adjustments 0.4 0.5 0.6 0.7 0.8
Working capital changes 0.9 (1.4) (4.3) 0.1 (1.9)
Cash tax paid (0.0) (0.0) (0.3) (1.3) (2.6)
Cash flow from operations 3.3 2.8 3.1 7.0 1.1
Capex (1.2) (0.2) (0.7) (0.5) (7.5)
Net investments & sale of FA 0.1 0.0 (0.5) 0.0 0.0
Others 0.0 0.0 0.0 0.0 0.0
Cash flow from investing (1.1) (0.2) (1.2) (0.5) (7.5)
Debt raised/(repaid) 0.6 (0.8) 1.5 2.0 0.0
Equity raised/(repaid) 0.0 0.0 0.0 0.0 13.7
Dividends paid (0.4) (0.8) (0.9) (8.0) (1.2)
Others (0.1) (0.1) (0.2) (0.3) (0.3)
Cash flow from financing 0.1 (1.7) 0.4 (6.3) 12.2
Change in cash 2.3 0.9 2.4 0.2 5.8
Change in net cash/(debt) NA 1.7 0.4 (1.8) 5.8
Ending net cash/(debt) (2.5) (0.8) (0.4) (2.2) 3.6
KEY RATIOS (FYE Mar) 2014 2015 2016 2017F 2018F
Revenue growth (%) NA 92.4 53.3 13.6 5.0
EBITDA growth (%) NA 68.1 81.3 6.2 6.0
Pretax margins (%) 10.6 10.0 12.5 11.3 7.0
Net profit margins (%) 9.1 8.7 10.4 9.5 5.9
Effective tax rates (%) 14.7 13.8 17.9 17.0 17.0
Net dividend payout (%) 22.6 30.6 16.8 130.1 30.0
ROE (%) NA 61.6% 66.8% 59.0% 22.6%
Free cash flow yield (%) 2.5 2.9 2.2 7.4 (7.4)
Source: Company, NRA Capital forecasts

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 Sanli Environmental Limited

NRA Capital Pte. Ltd (“NRA Capital”) has received compensation for this valuation report. This publication is confidential and general
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