Sino Environment Rides on China's Pollution Woes
Date: 19-Jun-06
Country: SINGAPORE
Author: Fayen Wong
The group expects net profit to rise at least 57 percent in 2006 due to booming demand and sees revenue and profit nearly doubling in 2007, when the firm moves into a bigger plant that will more than double capacity.
"The results for the first quarter in terms of net profit earned are a good indication of our performance for the rest of 2006," David Tan, chief financial controller of Sino-Environment, told Reuters in an interview on Friday.
"Looking at our current order book, we expect to beat last year's performance of 57 percent (profit growth)," he added.
The company, which makes and sells waste treatment devices for textile factories, petrochemical plants and spray-painting companies, saw its first-quarter net profit triple to 44.7 million yuan (US$5.59 million) on the back of higher orders.
Net profit for 2005 was up 57.6 percent at 52.3 million yuan.
Tan said 2007 net profit will get a major boost when Sino-Environment moves into a bigger fabrication plant in the first quarter of next year.
"With the increased capacity, we expect to more than double our revenue, which would in turn about double our net profit," he said.
Sino-Environment, which has a market capitalisation of US$137.6 million, makes equipment to treat and recycle chemicals from industrial waste gases, in particular toluene -- a hazardous colourless liquid commonly used as a solvent in textile, synthetic leather and petrochemical industries.
It also builds plants to treat industrial and municipal waste, but the water treatment business makes up only about 10 percent of the group's revenue.
CHINA'S POLLUTION WOES
China's rapid industrialisation and urbanisation in the last two decades have brought severe damage to the environment. The emission of air pollutants and discharge of untreated waste water have turned Chinese cities into some of the most polluted in the world.
According to the World Bank, pollution is costing China an annual 8 to 12 percent of its US$1.4 trillion economy in direct damage, such as the impact on crops of acid rain and floods.
Tan said the firm plans to take advantage of China's tougher legislation on environmental issues and was diversifying its services to treat and manage other harmful industrial waste gases such as sulphur dioxide, which is commonly emitted by coal power plants.
The firm treats sulphur dioxide emissions using a technology that transforms sulphur into calcium sulphate -- also known as gypsum, which is used as construction material.
"The government has ruled that all new power plants need to be built with environmental systems and recently announced a deadline for the older plants. So there is a lot of growth potential in this area," Tan said, adding that the firm is close to reaching an agreement with two power plants, each with a deal size of at least 100 million yuan.
"The implementation of stricter laws and increasing awareness of environmental protection in China will be one of the major catalysts to drive Sino-Environment's growth," Lawrence Lye, analyst at UOB Kay Hian said.
The company, which was listed on the Singapore Exchange in April, raised about S$22.5 million in the initial public offering. Issued at S$0.33, the stock more than doubled in value on its first day of trading. It set an intraday high of S$0.935 in May but has since fallen back an now trades around S$0.75.
