Broker: CGS International
Date of Report: September 3, 2025

Sanli Environmental Ltd: Riding Singapore’s Water Infrastructure Boom – Is a 92% Upside on the Cards?

Introduction: A New Wave for Sanli Environmental

Sanli Environmental Ltd, a Singapore-based environmental engineering group, is fast emerging as a leading play on the nation’s water and waste management ambitions. With a robust order book, accelerating earnings, and strategic diversification, Sanli is positioned at the confluence of government infrastructure spending, ESG tailwinds, and the need for water security in an increasingly volatile climate.
CGS International initiates coverage on Sanli with an “Add” rating and a compelling target price of S$0.51, representing 92.5% upside from the current price of S$0.265. The bullish thesis hinges on a forecasted 88.7% EPS CAGR for FY25-FY28, margin normalization, and new business verticals.

Investment Highlights: Key Catalysts for Sanli’s Rerating

• Outstanding Order Book: S\$333.9 million as of July 2025, with bids for an additional S\$205 million in play by end-CY25.
• Singapore’s Water Infrastructure Spend: Annual government investment in water management exceeding S\$1 billion since 2016, with plans for a S\$100 billion coastal protection program.
• Margin Upside: Margin recovery expected as Covid-19 legacy projects wind down and new, larger contracts are secured.
• New Growth Engines: Entry into magnesium hydroxide slurry for both water treatment and marine scrubber markets, and expansion into renewable energy assets in Thailand.
• Potential M&A Target: Sanli’s unlimited tendering capability and local credibility may attract interest from international conglomerates seeking Singapore market entry.
• Dividend Upside: Payout ratio targeted at 30%, with yields rising to 4.4% by FY28F.

Financial Performance: Revenue and Earnings on an Upcycle

Sanli’s revenue has demonstrated an unbroken growth trajectory, more than doubling from S\$60.5m in FY21 to S\$157.6m in FY25. The net profit story, though dented in FY24-FY25 by inflation and legacy project costs, is poised for a sharp rebound.

Order Book Momentum & Revenue Visibility

Sanli’s order book stood at S\$333.9m as of July 2025, with a S\$205m bid for the Changi NEWater Facility 3 that could swell the backlog to S\$538.9m. This would underpin annual revenues in the S\$180m–270m range over FY26-28, depending on project completion timelines.
Key projects include:

• Tuas Water Reclamation Plant (S\$170m MEICA contract)
• Polder Project at Pulau Tekong (S\$68m, Singapore’s first coastal protection initiative)
• Johor River Waterworks (S\$71m, Malaysia)

Business Segmentation: Core and Emerging Engines

Engineering, Procurement & Construction (EPC):

• Contributes 70.5% of FY25 revenue and 41.2% of gross profit
• Scope: Design, upgrade, and commissioning of water treatment, pumping, waste, and air pollution control systems
• Holds BCA L6 licenses (ME05, ME11) – eligible for unlimited-value contracts

Operations & Maintenance (O&M):

• 28.1% of revenue; 61.6% of gross profit in FY25
• Over 30 projects with PUB, Singapore’s national water agency

Emerging Business Segments (EBS):

• 1.4% of FY25 revenue; currently loss-making, but targets high-margin, high-growth verticals
• Chemical Manufacturing: Magnesium hydroxide slurry for water treatment and marine scrubbers; first ship top-up completed in March 2025
• Industrial & Gasification: Integrated solutions for water/air pollution/waste in Southeast Asia
• Renewable Energy Solutions: Solar asset ownership/operation in Thailand (20-year PPA in place)

Margin Recovery and Earnings Upside

Sanli’s EPC gross margin averaged 12.2% in FY22-24 but dropped to just 5.5% in FY25, reflecting the final completion of legacy, inflation-hit Covid-era contracts. Margins are forecasted to recover:

• FY26F: 10.0%
• FY27F: 10.6%
• FY28F: 11.2%

This, combined with larger contracts and lower interest rates, is set to drive a net profit upcycle from S\$1.5m in FY25 to S\$11.7m in FY28.

Magnesium Hydroxide: A High-Margin New Growth Engine

Sanli’s wholly owned Mag Chemical subsidiary launched magnesium hydroxide slurry production in June 2022. The product is sold for use in wastewater plants (pH adjustment, odour/corrosion control, heavy metal removal) and for marine scrubbers to reduce sulphur emissions. The first marine vessel top-up was completed in March 2025.
Key points:

• Current production: 1,000 tonnes/month (single shift); scalable to 2,000–4,000 tonnes/month
• Gross margin at scale: ~40%
• Global market size: US\$1.36bn in 2024, projected to reach US\$2.06bn by 2030 (7.3% CAGR)

Singapore’s Water Strategy: Securing the Future

Singapore’s “Four National Taps” strategy incorporates local catchment, imports, NEWater (reclaimed), and desalinated water, with continuous investment in advanced infrastructure:

• Major projects: Deep Tunnel Sewerage System Phase 2, Tuas Water Reclamation Plant, redevelopment of Kranji Water Reclamation Plant
• 124 sites certified under the Active Beautiful Clean Waters (ABC) programme as of June 2024
• Annual government water spending consistently above S\$1bn since 2016
• S\$100bn earmarked for long-term coastal protection

Valuation: Peer Comparison and Scenario Analysis

Sanli is valued at a FY27F P/E of 15.9x, 2 standard deviations above its 4-year average, justified by its 88.7% EPS CAGR. Peer comparison reveals a significant discount despite superior growth and return metrics.

Other SGX-listed peers (all Not Rated) include Koh Brothers Eco Engineering, GRC Ltd, Memiontec Holdings, SIIC Environment Holdings, but Sanli stands out for higher growth and return metrics.
Scenario Analysis:

• Bear Case: Misses S\$105.3m order delivery. FY27F EPS: 2.73 Scts. Valuation: S\$0.43.
• Base Case: Delivers current orders as planned. FY27F EPS: 3.23 Scts. Valuation: S\$0.51.
• Bull Case: Wins Changi NEWater Facility 3 (S\$205m). FY27F EPS: 4.36 Scts. Valuation: S\$0.69.

Dividend Policy and Returns

Sanli’s payout ratio fell to 30% in FY24-25, as the company conserved cash for interest payments and working capital. With earnings growth, projected dividend yields could reach 4.4% by FY28F.

Balance Sheet and Gearing Risks

Sanli moved from net cash to net gearing in FY24 (1.02x) and FY25 (1.37x) due to:

• Purchase of new HQ at 22 Chin Bee Drive (S\$13.8m)
• Higher working capital for revenue growth

A recent placement of 33.3m shares at S\$0.12 (raising S\$3.9m) only modestly reduces gearing. Cash flows are expected to recover as legacy projects wind down.

Key Risks to Monitor

• Customer Concentration: Two unnamed customers accounted for 75.5% of FY25 revenue (PUB likely largest).
• Government Policy: Adverse changes in labor quotas, levies, or project delays could compress margins.
• Execution Risk: Project delays, cost overruns, or poor management could erode profitability.
• Technology Disruption: Need to keep pace with advances in water/waste management tech.
• Overseas Expansion: Regulatory and operational risks as Sanli ventures into Malaysia and Thailand.
• Contractual Disputes: Typical in construction sector; managed through reserves and legal protocols.

ESG Alignment and Corporate Governance

• ESG-Positive Business Model: Core activities in water, waste, and solar energy are sustainability-aligned.
• Anti-Corruption Policy: Zero-tolerance, comprehensive training, and no incidents reported in FY23-25.
• Workplace Safety: Strong safety culture, daily toolbox briefings, and independent HSE department.
• Human Capital Development: 81 training programmes in FY25, 11,580 training hours, 830 employees trained (average 14 hours per employee).

Leadership and Board Strength

Sanli’s board and management team bring deep sector experience:

• Mr. Kew Boon Kee: Deputy Chairman and Executive Director, over 25 years in water/waste projects.
• Mr. Sim Hock Heng: CEO and Executive Director, 25+ years industry experience.
• Mr. Lee Tien Chiat: Executive Director, chemical manufacturing and EPC oversight, 25+ years experience.
• Other key leaders: CFO Mr. Tan Thean Seang, Business Unit Directors, and specialists in safety, operations, and corporate management.

Conclusion: Sanli Environmental – A Compelling, High-Growth Play on Singapore’s Water Future

Sanli Environmental stands out as a pure-play on Singapore’s water infrastructure boom, with a clear path to margin and earnings recovery, government-driven project visibility, and new high-margin businesses in the pipeline. With robust governance, ESG alignment, and the capacity for large-scale execution, Sanli is primed for a valuation rerating in the coming years.
Investors seeking exposure to the intersection of infrastructure, sustainability, and government-backed growth in Asia should keep Sanli firmly on their radar.

Appendix: Key Financial Ratios and Drivers