AT ITS TELECON with the investment community last week, China Everbright Water CEO Wang Tianyi shared his thoughts on the way forward for China’s environmental industry in the years to come.
CEO Wang Tianyi has a 2-pronged growth strategy: aggressive acquisition and foray into industrial wastewater treatment. NextInsight file photo“There is a huge untapped market in the environmental sector, as the government will allocate commercial companies and MNCs with a larger share of the pie.
"Compared to local municipal governments, some market players have the financial muscle for the huge capital outlay that is required as well as bargaining power to bring down the cost of project financing.
“We intend to increase our water treatment capacity by a million tons a year until we have a total capacity of 10 million tons mainly through M&A of companies with sizable assets, as well as TOT and BOT projects.
“Our aggressive expansion target means each M&A will be of sizable scale. As large acquisition targets will have more projects, it is inevitable that some projects will have higher return on investment while others will be less efficient. We seek M&A, BOT and TOT assets with an average IRR of 8% or more.
The Group had a historical average project IRR of 10% or more.
“Because we have the right political connections, advantage in raising cost effective financing, and ability to raise water treatment standards of the projects that we take on, I believe our return on investment will be among the best in the industry.
“One way to increase return on investment is providing better water treatment standards. For example, we expect the water tariff from our Xianyang project to be revised upward as we upgrade its water treatment standard from 1B to 1A. Xianyang is one of the larger and better projects we inherited from Hankore, and is now into construction for phase 2. We hope to implement the same strategy with other Hankore projects.
“The business volume from treatment of municipal waste, as well as the supply of fresh water to households is huge. Our target for water treatment capacity of 10 million tons a year in 3 to 5 years is for this segment.
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“We envision a second leg of business growth in the provision of third-party services for entire industrial parks to help companies achieve regulatory requirements for discharge of industrial wastewater at a cost level possible only with economies of scale.
“We may also go into public toilet projects. China’s tourism promotion board wants to build more than 10,000 new toilets and upgrade over 20,000 toilets in tourist districts. There are not enough toilets in China currently, and where toilets are found, they are found wanting.
“Many public toilets in PRC tourist destinations do not have mechanism for waste discharge, and this has resulted in environmental pollution. China’s tourism promotion board is co-ordinating the upgrade of public toilets. Actual implementation will be carried out by commercial companies.
“We are studying the Public Private Partnership project financing model. It is very difficult to manage public toilets well. We need innovative technology, such as MBR to treat toilet waste. We also need a feasible financing model. End users will likely pay for use of public toilets at rates subsidised by the government."
The Group's net profit attributable to shareholders was HK$211.3 million for 1HFY2015, up 27% year-on-year.
