China Everbright Water's 1QFY2015 revenue increased by 80% year-on-year to HKD436.3 million, boosted by upgrading and expansion work on Binzhou Boxing Waste Water Treatment project and Suzhou Wuzhong Chengnan Waste Water Treatment Project Phase II, as well as an increase in operating and finance income. NextInsight file photo
Excerpts from analyst's report
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Growth driven by HanKore consolidation
1Q15 results were in line, at 18% of our FY15F. We are expecting new capacity from acquisitions later in the year. This was the first full quarter of contributions from HanKore, exhibited in China Everbright Water's (CEWL) strong top and bottom lines. Revenue grew 80% YoY to HKD436m, mainly from a HKD115m increase in construction revenue and HKD83m increase in recurring water-treatment income. GPM shed 5.2ppts to 49.9% from a year ago due to a larger portion of construction revenue. Net profit increased 44% YoY to HKD105m.
Waiting for big acquisitions
We have factored in 1m tonnes of acquired wastewater treatment capacity for this year. So far, CEWL has not announced any major acquisitions. It completed its share placement of SGD113m to IFC on 21 Apr. We believe CEWL has sufficient projects in its pipeline.
A stronger balance sheet and high expectations from parent Everbright Group could make CEWL more aggressive in M&As. If it can achieve its minimum acquisition target of 1m tonnes in FY15, our full-year earnings should be within reach.
Maintain BUY with catalysts from industry consolidation, leading to M&As. We leave our EPS and TP unchanged, at 30x FY15 P/E, comparable with HK-listed peers.
Comments
The Ju County Chengbei Waste Water Treatment Project in Rizhao City, Shandong Province has daily waste water treatment capacity of 40,000 cubic meters, compliant with Grade 1A national standard.
Total investment cost about Rmb 103 million, concession period 29 years.
About half of the projects owned by the post-merger CEW listed entity are in Shandong.
The management wants to expand its foothold in Shandong because of the large population size and relatively developed economy (top 3 GDP among PRC provinces since 2007).