With earnings that have doubled in two years and new market expansion plans on the horizon, PhillipCapital analysts Paul Chew and Liu Miaomiao believe that Memiontec will ride the wave of growth in the coming years.
However, the analysts have kept the stock unrated in their May 13 note.
Memiontec was established in 1992 and operates across Singapore, Indonesia and mainland China. It specialises in water treatment and waste management services, and is able to craft dependable, space-efficient, and innovative water and wastewater treatment solutions, with an emphasis on reliability and cost-effectiveness.
Chew and Liu note that Memiontec has four main business segments: total solutions with engineering, procurement and construction (TSEPC); operations, maintenance and service (OMS); sales and distribution of water treatment systems and trading (SDS); and sales of water (SOW) through transfer-own-operate-transfer (TOOT) and build-own-operate-transfer (BOOT) projects.
Notably, Memiontec was awarded a $56.6 million contract by PUB – CWRP II C22C (Membrane Bioreactor) in 2022, and secured the TOOT project at Nusa Dua, Bali, with water sales for 25 years in 2023.
Chew and Liu highlight three investment thesis they have for the company. Memiontec’s earnings doubled in two years, in which for FY2023, contract assets increased by 130% y-o-y to $27 million, and inventory multiplied by 80% to $2.6 million due to additional equipment and parts temporarily stored in a third-party warehouse for a project in Singapore.
The analysts add that revenue for the TSEPC business segment in FY2023 increased by 63% y-o-y, driven by higher contributions from Singapore's TSEPC operations, but was partially offset by a decrease in revenue from Indonesia’s TSEPC operations due to the completion of significant work for larger projects in Indonesia in 2H2022.
Memiontec’s additional income surged by 39.8% from $0.2 million to $0.3 million in FY2023, primarily driven by government grants, particularly those aimed at expanding into new overseas markets.
They note that its OMS revenue and SDS businesses saw a decrease for this period, but highlight that the company has expanded into new markets such as Vietnam.
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In addition, Chew and Liu say that they believe the group’s growth will come from a rise in water capacity in Indonesia and Singapore.
“Indonesia plans to expand its water pipeline, dams, sanitation, and drinking water. The estimated cost of water infrastructure investment until 2030 is US$1 trillion ($1.35 trillion),” they say. “The Indonesian wastewater treatment market is projected to grow at a CAGR of 8.9% from 2022 to 2027.”
Singapore’s water demand is projected to double by 2065 — NEWater supplies 40% of Singapore's needs and is expected to reach 55% by 2060, and desalination will double from 25% to 50% by 2030.
The analysts note that this opportunity, combined with Memiontec’s solutions, puts it in a position of being an end-to-end water solutions company.
Memiontec has established a track record in water infrastructure projects, having completed projects in desalination, water reclamation and sewage treatment in Singapore, they note.
While projects in Indonesia have mostly been drinking water treatment plants and, recently, a desalination plant in Bali, the model in Indonesia includes taking an ownership stake in the project to secure additional recurrent income aside from long-term maintenance contracts, they add.
As the company holds investments in several foreign subsidiary corporations, Chew and Liu cite currency risks as notable. Currently, no formal hedging policy is in place to mitigate this risk, they say.
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In addition, most projects by Memiontec are government-backed, businesses heavily depend on government policy. A change in government may therefore lead to a divergence in policy direction, affecting project pipeline and revenue, they note.
Finally, Memiontec’s operation in Singapore, Indonesia and China presents a concentration risk to the analysts, in which the company may be more vulnerable to economic downturns to regulatory changes.
As at 12.03pm, shares in Memiontec are trading flat at 9.9 cents.
