CNA Group: Checking out customer's plant

(SELL, S$0.175, TP S$0.14)

We recently visited Seagate’s plant in Woodlands (northern tip of Singapore) to check out CNA’s control and automated systems in action. CNA was also the Green Mark consultant for this facility. The plant has won the Platinum Green Mark Award by Building and Construction Authority (BCA) and is a showcase of how “intelligent” buildings can be environmentally friendly and reduce costs. Given the stringent requirements (for example clean room requirements) of Seagate as a hard disk drive manufacturer, we view CNA’s advanced control and automated systems and its close relationships with its customers (the fact that Seagate allows third parties to tour its facility) as positives. However, with earnings looking lacklustre this year, investors will probably take a while before taking a second look at CNA. We are maintaining our earnings estimates and TP of S$0.14, based on 11.9x FY12 earnings (its 5-year historical average).

A landmark plant with green technology. Seagate’s Woodlands 3 (W3) plant has installed CNA’s control and automated systems worth S$6m in its BCA awarded Platinum Green Mark facility. The system link up and provide controls on various systems in the building from a central location, ranging from temperature to fire safety systems. Some green technology put forth by CNA were installing a rain sensor to detect raining condition and adjusts the space temperatures upwards to conserve energy. Another included the installation of germicidal UVC Emitter Systems for all air handling units and fan coil units. UVC emitters are fixtures that produce UV light, which destroys harmful microbes and eradicates surface and airborne mould, viruses and bacteria. This eliminates the bio-film and dirt on the cooling coils and enhances heat transfer efficiency without the need for coil washing. It also improves indoor air quality and workplace productivity.

Energy and cost savings. With its efficiently designed systems, W3 has an energy reduction of 54.4m kWh/year. This is equivalent to a yearly reduction of 23.6k tons of CO2 emission, scrapping 4,298 cars from the roads or planting 9.5m trees. Despite the higher investment for such green initiatives initially, the reduction in energy usage translates to cost savings in the longer term.