Leader Environmental Technologies (LET), an environmental solutions provider, opened its first trade on the SGX this morning (16 July 2010) amidst a flurry of trades, seeing it lead the top volume chart. The fifth IPO to list on the Mainboard in 2010, LET offered 116.5m new shares (2m for the public float and another 114.5m on placement).

Its stock rose to a peak of $0.275 before retreating to $0.235 at mid-day, 11.9% higher than its initial offer price of $0.21. This hands the company a market capitalisation of $103.8m.

LET is a one-stop service provider of environmental protection systems, primarily in the R&D, design, manufacturing, assembly, installation and support for industrial wastegas and wastewater emissions.

A unique strength that LET wields in the PRC is the technology to undertake and customise large environmental protection projects. This is made possible by a strong and experienced R&D team, who has a technology collaboration with CRAES, a renowned non-profit research institute in the PRC. Since its establishment, the company has successfully patented five environmental protection systems and technologies, with three more still ongoing.

LET’s head office is in Changchun City, PRC. It has many links with state-owned enterprises, having inked contracts with CNPC, China FAW Group and Jilin Chemical Fiber Group among others. Having already obtained a certificate from the PRC government to sell its services of operating wastewater and wastegas treatment systems to companies, LET plans to start operations in this business arm later this year.

Strengthening Financials
Over the past three years, LET’s top and bottom lines rose at a commendable CAGR of 34.3% and 36.2% respectively. For FY09, the company saw a 40.7% year-on-year net earnings surge to Rmb80.9m. This was in tandem with a 24.2% revenue increase to Rmb181.7m, attributable mainly to higher contribution from its dust elimination, industrial wastewater treatment and design and technical services business. In addition, net margin has lingered above a healthy 28% for the past three years.

Based on its net profit of Rmb64.3m for FY09 and on a post-invitation share capital of about 441.6m shares, LET’s IPO is priced at 6.8 times historical earnings. This puts it at a favorable position to industry peers who are similarly highly dependent on the China market: Sinomem’s stands at 11.2 times, while China Environment’s ratio is 14.2 times.

Furthermore, the company’s directors hope to recommend a dividend payout of “not less than approximately 10 percent” of FY10’s net profit.

Cleaning Up Ahead
LET plans to raise an estimated $16m in net proceeds from the listing. To maintain its growth momentum, a large chunk at $10.3m will be channeled to undertaking larger environmental protection projects, while another $3.1m has been allocated to funding R&D. The remaining sum would be used in general working capital and investing in capital expenditure.

China’s economy is set to continue rising, unimpeded by its recent currency revaluation, as the Asian Development Bank raised its GDP growth forecast for 2010 to 9.6% – putting pressure on deteriorating pollution levels. Coupled with international demands from the World Health Organization to lower pollution, the government has committed US$175 billion in the 11th Five Year Plan (2006 – 2010) to clean up industrial pollution.

Its financial commitment in the 12th Five Year Plan (2011 – 2015) shows no signs of waning, with the ruling party stressing it will tackle global warming fears. And this continued push towards a low-carbon economy will place LET in prime position to use the capital flow from its IPO.