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Citic Envirotech on lookout for promising SMEs

The Business Times by SIOW LI SEN

WASTEWATER treatment provider Citic Envirotech Ltd (CEL) is on a roll, bolstered by plenty of opportunities in its existing China market even as it ventures abroad.

Mainboard-listed CEL announced in October its first investment in an accelerator programme. Under the programme, it has taken a 20 per cent stake in Century Water Systems & Technologies for S$1.73 million.

Headquartered in Singapore, Century is an advanced water treatment engineering firm that specialises in water purification nanofiltration, pervaporation membranes, and wastewater treatment systems and technologies.

With its extensive network, CEL will help Century sell its membranes in China, said Hao Weibao, CEL executive chairman and chief executive. "There are a number of good companies in Singapore, but they lack chances to market in China,'' said Mr Hao in a recent interview.

CEL is committed to investing S$30 million in promising SMEs over four years via its accelerator programme, the wholly owned Singapore Envirotech Accelerator Pte Ltd. It is looking to invest in more than five companies, bring their products to market, and eventually take them to potential listings on the Singapore Exchange, said Mr Hao.

"Our biggest strength is China," said Mr Hao. Currently 90 per cent of CEL's business is in China.

Formerly known as United Envirotech, the company was renamed CEL in 2015 following the takeover by Citic Ltd, one of the largest state-owned conglomerates in China. Citic Ltd holds 54 per cent while the second largest shareholder is China Reform Fund, a state-owned asset management firm with 22 per cent stake.

CEL is the flagship platform for Citic Ltd to develop and strengthen its water and environmental businesses.

Prospects are good as the Chinese government tightens up standards to reduce pollution and addresses environmental issues, Mr Hao said.

The government has rolled out increasingly progressive environmental policies to curb pollution and promote ecological restoration, he said.

According to estimates from the Environmental Planning Institute of the Ministry of Environmental Protection, an investment of 4.6 trillion yuan (S$913 billion) will be required to fulfil the goals set out in the Water Pollution Prevention and Control Action Plan.

On the back of increasingly stringent environmental protection regulations in China, growth in the industrial wastewater treatment market is expected to outpace that of municipal wastewater treatment, with growth rates of 5-10 per cent annually under China's 13th Five-Year Plan. By 2020, the scale of the urban wastewater treatment market is expected to reach 290 billion yuan, while the scale of the industrial wastewater treatment market will reach 230 billion yuan.

CEL has main three business segments. It has an engineering, procurement and construction unit which provides wastewater treatment systems to major clients such as Sinopec and industrial parks across China.

Another division builds, owns and operates wastewater treatment plants. It has over 60 treatment plants in China.

It also manufactures membrane systems and is a leading provider of membrane bioreactor wastewater treatment technology in Asia.

Even though opportunities abound in China, the company is also looking to the US and Europe to diversify risks, and enter new markets, said Mr Hao.

Citic subsidiary Memstar Pte Ltd in July announced the opening of its first membrane manufacturing plant outside Asia in Texas, USA. This takes its number of membrane plants to five, with one in Singapore and three in China.

CEL has 2,100 staff including 100 in Singapore.

The US$15 million facility in Texas will manufacture Memstar's latest product, the Memstar advance reverse osmosis and nano filtration membrane, which enables the removal of salt from water to facilitate desalination, water recycling and many other water purification applications.

With the new product as well as its existing microfiltration and ultrafiltration membranes, Memstar now offers a complete range of membrane filtration products used in water treatment, Mr Hao said.

The US plant will help the company expand into new areas such as food and beverage and pharmaceutical, he said.

Opening the US plant where it has "higher standard technology" will help the firm capture new markets in the US, Europe and also back in China, said Mr Hao.

Currently China imports more than 90 per cent reverse osmosis membranes, he said.

Since Citic's takeover, CEL has posted higher revenue and profits.

Revenue for nine months 2018 of S$788.4 million is 86.8 per cent of FY2017's S$908.8 million. Revenue for 2016 and 2015 were S$544.6 million and S$336 million, respectively. Net profit for nine months 2018 of S$109 million was 85.7 per cent of FY2017's S$127.3 million. Net profit for 2016 and 2015 were S$102 million and S$51.5 million respectively.

The company also declared its first interim dividend payout of 0.5 cent per share in July. In 2017 it paid a final dividend of 1.5 cents.

But CEL's share price does not seem to reflect the positive earnings. Its 42.5 cents on Nov 2 is a far cry from its year-ago high of 78 cents.

"Share price? It's a God-knows question," said Mr Hao, adding the depressed price is more a function of the lack of confidence in the overall stock market.

"Bottomline, we are trying our best to create value for the company, to improve profit and revenue, to improve the fundamentals of the business."