For the year ended March, Sanli reported earnings of $2.2 million, on revenue of $139.6 million, down 11.4%, mainly due to extended project timelines at one of its existing Tuas projects which resulted in revenue recognition delayed to 2027.
The company was in the news earlier after it announced that a key customer is asking for liquidated damages. This case is pending.
"We believe the relationship with this key customer remains strong, as the delayed project has been underway for a long time. Sanli has continued to secure significant contracts from the same customer, including another $13.7 million contract ith its major customer for maintenance-related services secured in 1Q26," adds Seet.
Seet believes that this year will be one where Sanli will focus more on execution rather than securing new orders. For now, the company's orders on hand has reached $748.1 million.
"Better execution will be vital to any potential uplift in earnings in the future. Sanli will still be tendering for projects, but it will be more selective in future tenders, opting only for higher-margin projects, and potentially moving into the private sector," he says.
Meanwhile, given the delay in project delivery, plus higher costs seen, Seet has lowered his FY2027 gross profit margin from 18% to 14.7%.
As a result, his earnings estimate for FY2027 has been lowered by 21% and FY2028's by 28%. By applying the same 15.5x FY2028 valuation, Seet's target price for this counter has been reduced to 26 cents.
See also: CGSI's Ong raises target price for Pan-United from $1.55 to $1.85
In his separate note, William Tng of CGS International has also cut his target price for this company, although he has kept his "add" call given that earnings growth is intact.
"Sanli needs to convince investors that it is able to translate these orders into higher net profit," says Tng in his June 5 note.
With revenue recognition deferment due to delays from other contractors participating in the projects, he has reduced his FY2027 revenue and earnings forecast by 29.1% and 23.5% and FY2028's by 39.1% and 33.1%. Tng, by applying the same 13x FY2027 earnings multiple, has derived a new target price of 22 cents, down from 33 cents.
Key re-rating catalysts, according to him, are higher-than-expected order wins and margin expansion, and faster progress in its magnesium hydroxide slurry production business.
On the other hand, downside risks include unfavourable government policy, including higher ratio for local labour content or levies that may impact margins, as well as more intense industry competition leading to compressed margins.
Shortage of workers, poor project management and execution as well lack of access to funding to execute its new order wins are possible risks too.
Sanli Environmental shares, as at 10.15 am, traded at 18 cents, down 49.71% year to date.
