The Group's 1Q10 revenue declined 38.2% to $8.8 million, mainly due to the lower engineering income for the current period. However, the recurring treatment revenue increased 20% to $3.0 million in 1Q10.

Material purchased, consumables used and subcontractors' fees decreased 52.7% to $5.4 million, in line with the 50.6% decline in revenue from engineering segment.

The decrease in other operating expenses of 32.1% as compared to the last corresponding period was attributable to lower engineering related expenses.

We raised FY11 sales estimate for treatment business by 10% while cut FY10-11 raw material cost estimate by 6-7%.

The sluggish performance by engineering segment was largely within our expectation. As a matter of fact, the contribution of this segment is gradually sidelined by the water treatment segment which has shown improving operating results over the past few quarters. The revenue for treatment was lifted by increasing minimum off-take volume and more treatment plants acquired.

Given that the industry outlook remains bright and the concession for treatment plant is not easy to come by these days, we believe United Envirotech is well poised to reap the benefits. On top of that, the management commentary in its recent results announcement turned more bullish. They are expecting better operating environment in the next two quarters. On the back of favorable backdrop, we increase valuation multiple to 1.25x FY10 NTA per share from 0.7x FY10 NTA, deriving a target price of S$0.28, representing 55% upside potential. Maintain BUY.