C&G ENVIRONMENTAL Protection Holdings Ltd (SGX: D79) expects to triple its waste treatment capacity to 3,600 tons per day in calendar year 2010 thanks to robust project completion performance following a shift to waste-to-energy (WTE) business from its original focus on textiles.
The Fujian-based firm recorded a 188.2% first quarter year-on-year rise in revenue to 243.7 mln yuan backed by strong waste-to-energy (WTE) business.
The Singapore-listed firm, formerly known as C&G Industrial Holdings Ltd before changing its name on May 4 of this year, grew its net profit nearly 27-fold to 136.8 mln yuan.
It was boosted by a "gain on a bargain purchase" amounting to RMB142 m when C&G bought over the environmental business.
The purchase of the WTE operations was from an interested party, which has put the company on an aggressive expansion track.
“Both Hui’an Phase 1 and Huangshi Phase 1 WTE projects will commence full scale operation by the end of this year, adhering to our project progress schedule," said Executive Director Mr. Lin Yan.
“With the designed waste treatment capacity of Hui’an Phase 1 and Huangshi Phase 1 WTE projects to be 700 tons/day and 800 tons/day respectively, combined the already operational Jinjiang plant’s current waste treatment capacity of 1,800 tons/day, and another designed 300 tons/day in Anxi Phase 1, our total waste treatment capacity will be enlarged to 3,600 tons/day by the end of this year, more than three-fold growth from the beginning of this year.”
Six Greater China fund managers participating in a recent trip organized by Aries Consulting and Financial PR to six listed firms in Fujian province were told by C&G executives that the company was bullish on its future prospects.
"Our revenue model is now based on waste-to-energy power plants from which we receive fees based on the weight of solid waste handled. And then we sell the byproduct – generated electricity – to various grids,” Mr. Eddie Mak, C&G’s General Manager of Corporate Finance, said.
And the company’s BOT model ensured that income for each project would be recurring over many years.
"Our BOT (Built, Operate, Transfer) projects are contracted on 27 to 30 years basis, depending on projects in different cities,” Mr. Mak added.
The sharp increase in the first quarter top line was mainly due to revenue from waste-to-energy power plant operation and construction services totaling 175.7 mln yuan generated from the newly acquired subsidiary: C&G Environmental Protection International Ltd (C&G EPIL).
This was somewhat offset by a decrease of 16.6 mln yuan in sales revenue from PET chips and yarn products due to the lower demand of the products.
This revenue model conversion is quite a drastic development for a company that a few short months ago was a dedicated manufacturer of polyethylene terepthalate (PET) chips and yarn products, with much of its output destined for downstream producers in China’s massive textile and garment industry.
The majority ended up supplying chemical fiber and textile manufacturers in the maritime provinces of Fujian, Guangdong and Zhejiang.
WTE Conversion
C&G wears a brand new hat these days.
When the company offered guidance on April 19 of this year that it was expecting a loss for its PET chip and yarn business for the first quarter, this was just further indication of its organizational conversion to waste-to-energy business.
Now its core business is in the investment, construction, operation, and maintenance of WTE power plants across China.
The transition to the waste-to-energy business for C&G was essentially finalized just a few days ago, on June 9, when Mr. Hou Shiqing agreed to pay 45.8 mln usd in cash for C&G Environmental Protections Holdings Ltd’s PET chips and yarn business.
C&G agreed to sell its PET chips and yarn production business, under its wholly-owned subsidiary, CHGU Group Technology Holdings International (CHGU), to Mr. Hou, a major shareholder of Shishi City Gangyi Dyeing Manufacture Co.
The purchase consideration shall be paid in two batches: an initial 9.16 mln usd will be paid out once C&G's circular to convene a special general meeting for the disposal has been dispatched to shareholders with the balance sum of 36.64 mln usd paid out on the completion date.
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The proceeds from the disposal will be channeled for future WTE projects.
The translation is subject to final approval by the shareholders of C&G Environmental Protection Holdings Ltd as well as the Singapore bourse.
On February 9 of this year, C&G Industrial Holdings Ltd acquired the entire issued and paid-up share capital of C&G Environmental Protection International Ltd (formerly CuGu Environmental Protection International Ltd) satisfied by way of issue of 505,023,354 new ordinary shares.
Now that all the merging, acquiring and PET chip unit selloff activities were in the books, C&G Environmental was fully ready to get down to its new prime business focus: WTE.
No Trash Talking WTE Growth
According to a state media report last summer, China generates 150 mln tons of solid waste per year, an amount which is growing by 8% annually.
And judging by C&G’s rapidly expanding client base, with a current BOT portfolio of 10 WTE projects, the company is a very considerable player in the sector.
Its Phase I and II WTE plants in Jinjiang are up and running, giving our seasoned group of experienced fund managers in tow on a recent plant tour a much deeper appreciation for the complexity of a process that on the surface seems quite straightforward – waste incineration for energy generation.
We observed its Phase II plant, construction upon which was finalized last month, running at what looked to be near full capacity.
This puts the Singapore-listed firm well on its way to meaningful handling capacity expansion, as the Jinjiang Phase I and Phase II plants have a combined daily capacity of 1,800 tons.
Earlier this year, proving its newfound commitment to the waste-to-energy industry and migrating away from its former PET chip emphasis, C&G Industrial Holdings announced at the time that its new wholly-owned subsidiary — C&G EPIL-- had successfully secured BOT projects for three new WTE plants in two Fujian province-based cities: Nanping and Jianyang and Hubei city: Xiaogan, for a concessionary period of 27 to 30 years.
Management said that the three new plants are scheduled to be fully operational in 2012, with total designed daily treatment capacity of 1900 tons (600 for Nanping, 600 for Jianyang and 700 for Xiaogan Phase I).
The three projects expected to cost around 1170 mln yuan and will be fully funded from internal resources and borrowings at the project companies’ level.
With the addition of these three new projects, C&G EPIL will have an aggregate treatment capacity of around 10,000 tons per day for municipal solid waste.
