Growing in tandem with Singapore water story

To Sanli Environmental chief executive Sim Hock Heng, a challenge is more of a stepping stone than an obstacle. Having spent more than two decades of his career in the water treatment industry, he is well versed in the market's opportunities as well as risks.

"The water industry, like every other industry, has its challenges. Risk is always an issue, but the ability to accurately assess risk is critical in managing the business," he noted. "To me, a challenge is just another step in the journey - once you overcome it, you will be able to move on to the next level.

"In other words, failure is just a step away from success, because it provides you with valuable experience. And persistence is the key that allows you to reach your goal."

Mr Sim began learning about the water business in 1995, when he joined Dayen Environmental, a water solutions provider that later listed on the Singapore Exchange (SGX) and was renamed Moya Holdings Asia.

To capitalise on growing prospects, Mr Sim and two of his colleagues - Mr Kew Boon Kee and Mr Pek Kian Boon - founded Sanli in 2006 by pooling their savings of $30,000, while a third colleague - Mr Lee Tien Chiat - joined them a year later.

WINNING STRATEGY

To build a stable earnings stream, Sanli focused on servicing municipal contracts. Currently, nearly all of Sanli's revenues are derived from the Singapore Government.

SAFE ROUTE

We chose to go into the municipal sector because the Government is a good paymaster and a consistent revenue generator. With industrial clients, the possibility of facing losses and write-offs is much higher, while competition is stiffer and the margins thinner.

SANLI ENVIRONMENTAL CHIEF EXECUTIVE SIM HOCK HENG

"We chose to go into the municipal sector because the Government is a good paymaster and a consistent revenue generator," Mr Sim said. "With industrial clients, the possibility of facing losses and write-offs is much higher, while competition is stiffer and the margins thinner."

That proved to be a winning strategy. "As a result, we've grown in tandem with the Singapore water story," he added.

Sanli Environmental listed on SGX's Catalist Board last June.

The environmental engineering company, which has a market capitalisation of more than $75 million, has seen its shares rise more than 24 per cent from their initial public offering (IPO) price of 22.5 cents.

In 2018 year-to-date, the stock has registered a price gain of 3.7 per cent, compared with declines of 2.2 per cent for the FTSE ST All-Share Index and 2.3 per cent for the benchmark Straits Times Index.

The group has expertise in the design, delivery, installation, commissioning, maintenance, repair and overhaul of mechanical and electrical equipment, as well as process, instrumentation and control systems in wastewater treatment plants, water reclamation plants, Newater plants, waterworks, service reservoirs, pumping stations and incineration plants.

It has two core business segments - engineering, procurement and construction, which provides services in water and waste management; as well as operations and maintenance, which offers repair and maintenance services for equipment used in water and waste management infrastructure.

Heliconia Capital Management, the private equity arm of Singapore investment firm Temasek Holdings, holds a 7.97 per cent stake in Sanli post-IPO.

For the six months ended last Sept 30, Sanli reported a pre-tax profit, excluding one-off IPO expenses, of $2.3 million, against $2.7 million in the previous period.

Gross profit margin rose to 15.8 per cent from 14.4 per cent in the year-ago period, while net assets increased to $22.3 million as of Sept 30, from $8.5 million as of March 31. It had a net cash position of $4.8 million as of end-September.

Other water stocks on SGX include SIIC Environment Holdings, China Everbright Water and Hyflux.

KEEPING IT SIMPLE

Mr Sim's mantra revolves around the principle of simplicity. "If you focus on the basics and build up your fundamentals, everything will fall into place," he said.

Conservatism is another watchword. "We should start small and go slow. Stability plays a very important part in achieving consistent growth," he added.

According to market research firm Hexa Research, the global water and wastewater treatment market is forecast to reach US$674.7 billion (S$885.2 billion) by 2025, driven by rising demand for fresh water for drinking, industrialisation and agriculture. The Asia-Pacific region was the largest market, accounting for about 44 per cent of the revenue share in 2016.

This is anticipated to gain momentum over the forecast period, driven by growing demand for filtered water for various applications.

By 2060, Singapore's water use is forecast to more than double from about 430 million gallons a day now, according to PUB data. Reclaimed water, or Newater, and desalinated water are expected to make up 85 per cent of supply, up from 65 per cent today.

In 2000, the Government also implemented the Deep Tunnel Sewerage System (DTSS) - a super highway for used water management.

The DTSS is an overhaul of the entire sewerage system, where used water from across the island is collected and treated at three centralised water reclamation plants.

The second phase of the DTSS is targeted to be completed by 2025, and is expected to translate into a series of project tenders over the next few years.

ROBUST MOMENTUM

On the private-sector front, the management of industrial water use will increasingly become a priority for many water-intensive businesses operating here, particularly in the petrochemicals, electronics and pharmaceuticals sectors.

In the light of this, Sanli is hoping to bag contracts for larger-scale projects. "We want to compete with the big boys, such as Keppel and Sembcorp. That was why we took the IPO route - this will give us better credibility and more funding," Mr Sim said.

Sanli's order book stands at over $114 million as of Jan 10. "This will easily give us good momentum over the next two years," he added.

The group is also exploring opportunities to expand into Asean, particularly Malaysia, Myanmar, Vietnam and Indonesia, where there is demand for industry professionals to invest, build and operate privately owned water treatment facilities to mitigate the challenge of limited access to fresh water.

Sanli has identified local partners in a number of markets, and is focusing on municipal as well as build-own-operate projects.

"We are targeting contract values of US$20 million to US$30 million, and participation through partnership ventures or equity sharing. In this way, the risks will be very manageable," Mr Sim added.


•This is an edited excerpt from SGX's Kopi-C: The Company Brew, a regular column featuring C-level executives of SGX-listed companies. Previous editions can be found on SGX's My Gateway website www.sgx.com/mygateway

A version of this article appeared in the print edition of The Straits Times on February 19, 2018, with the headline 'Growing in tandem with Singapore water story'. Print Edition | Subscribe