24
July 2002
Citiraya
Recommendation:
SUBSCRIBE
Price: S$0.25
Turning
Trash to Cash
Citiraya
provides one-stop recycling and recovery services for
the electronics industry. Precious metals such as gold,
silver, palladium and platinum are extracted from the
electronic waste and sold. Gold sales are especially important,
accounting for a third of revenue. We recommend a SUBSCRIBE
for the following reasons:
As
an integrated recycler, attractive to electronics MNCs.
Citiraya is the only company in this region to provide
fully integrated recycling and extraction services to
electronics MNCs such as Nokia, 3M, Motorola and Gemplus.
It purchases complete electronic products, unlike some
recycling providers which only purchase relevant parts.
Suppliers are saved the hassle of dismantling products
themselves or sourcing for a variety of traders to purchase
different parts of their electronic waste. Citiraya also
commits to its MNC suppliers that their components and
products will be properly destroyed and not sold to third
parties. This security feature (which protects customers'
proprietary technologies) forms an important barrier to
entry.
Big
global market waiting to be tapped. Supply of electronic
components for recycling grows hand in hand with global
demand for electronic products. For PC monitors alone,
global demand is expected to expand 8% p.a. in the next
2 years, which promises a corresponding increase in the
amount of electronic components sent for recycling. Currently,
90% of Citiraya's supply comes from MNCs, which only account
for 3% of the global recycling market. Citiraya intends
to target the global consumer market, which makes up the
other 97% of the addressable market.
Beneficiary
of rising gold prices. Gold ingot sales account for
an estimated 35% of revenue. Gold currently trades at
S$19,800/kg (US$322.9/Troy oz), 15.8% above the average
S$17,100/kg (US$271/Troy oz) in 2001. Based on our analysis,
every 1% rise in gold prices raises Citiraya's net profit
by S$0.2m.
Citiraya
has no comparable in Asia. The average forward PE of comparables
in Japan, US and Canada (such as Waste Management Inc,
Allied Waste Industries Inc, Noranda Inc and Inco Ltd)
is 22.8x. At 9.9x FY02 PE, there is upside potential for
share price closer to the industry average. SUBSCRIBE.
