United Envirotech Ltd ("UEL") has been awarded a RMB 72 million contract tomodify, build and operate a 15,000 m3/day membrane based industrialwastewater treatment facility in Dafeng City, Jiangsu Province, China. TheBOT project has a concessionary period of 30 years and it will beundertaken by a project company, which UEL will own 50%. Unlike municipalwastewater, the treatment fee tariff for such industrial wastewater is morethan RMB5.50/m3 depending on the complexity of the wastewater. The projectwill be targeted to complete by March 2009.

Net profit in FY09 expected to increase by S$1.5 million:Of RMB72 million, approximately RMB30 million will be recognized asEngineering, Procurement and Construction ("EPC") revenue in FY09 andthe remaining will be classified as long term financial receivablesunder joint venture account, which will not be reflected in UEL'sbalance sheet. As a result, we adjust up revenue in FY09 by S$6.5million (forex RMB/S$=4.62) to S$54.4 million. The PBT margin forthis upgrading project is expected to be about 23-26%, highercompared to 15% for typical construction project. Accordingly, netprofit in FY09 is revised up from S$4.7 million to S$6.2 million.
Contribution from JV in FY10 expected to increase by S$0.6million: As this contract is BOT project, the wastewater treatmentwill be undertaken by UEL upon completion of plant upgrading. Itsmaiden contribution is expected to kick off at 1Q FY10. On full yearbasis, we expect the additional profit contribution from the JV to benearly S$0.6 million based on 80% utilization, tariff of RMB5.50/m3,conservative estimated profit margin of 25% and 50% stake ownership.Note that treatment of this project does not affect company's salesin income statement, but only contribution from associates and JVs.

We continue to adopt NTAmultiple as our core valuation as it is more conservative method comparedto the rest. Nevertheless, we increase the multiple from 0.6x to 0.7x duemainly to increased return on equity and improved earnings visibility as aresult of higher contribution from treatment business from FY10 onwards andalso. As a result of pegging 0.7x FY10 NTA per share, we derive a targetprice of S$0.15 (previous S$0.11), representing 36% upside potential.Upgrade to BUY.