Asia Environment:Initiate Coverage:Fair Value 47.5cts:Westcomb

Pl see report for initiation of coverage on Asia Environment.Buy. Fair value at S$0.475.
We are of the view that prospects for the Group are excellent; the large order book should see considerable growth for Asia Environment in FY06, estimated at about 60% growth in net profit from FY05 to FY06. We expect Asia Environment to continue good earnings growth in FY07 and FY08. Overall, we forecast revenue and net profit to grow at CAGR of 21.2% and 27.6% over the next three years. If we include our estimated unrealised profits, net profit CAGR could be approximately 29.6% over the next three years.
Key risks include lumpy earnings, further opening up of markets to foreign competition, project cost overruns and delays, and inability to meet project specifications.

We have valued Asia Environment at S$0.475, equivalent to 12x FY06 PER. We feel that this is a fair valuation in view of the visibility of earnings in the next two years, good competitive position in the industry and high growth potential.