Citic Envirotech should be sheltered from US-China trade war fallout: UOB KayHian

China yuan coins

Citic Envirotech should face minimal U.S.-China trade war risk due to its defensive business, while its share buyback highlights management’s confidence in its outlook, UOB KayHian said in a note last week.

“With Trump announcing new tariff measures on China, China’s swift counter looks like the beginning of a trade war,” UOB KayHian said. “While Chinese export-oriented firms may suffer, CEL is a different story with its defensive environmental business and government contracts with new order wins pushing to 2.7 billion yuan year-to-date.”

The brokerage said it expected CEL’s order-win momentum to continue amid China’s environmental focus and it noted that management said financing for all projects has been secured, either through internal cash flow or via external bank loans.

“CEL’s future remains bright amid a favourable macro backdrop as Chinese President Xi reaffirmed China’s war on pollution. We believe 2018 should be a year of stellar results for CEL,” it said.

It noted that CEL recently bought back shares for the first time in 2018.

“Its share buyback is a vote of confidence as its low price-to-earnings and high dividend yield make it an attractive play on China’s war on pollution,” the note said, adding the 2018 price-to-earnings ratio was low at 8.2 times and the dividend yield was attractive at 3.7 percent.

It rated the stock at Buy with a S$1.06 target price.

The stock ended Friday up 5.66 percent at S$0.56.

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