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ESSENTIALS
• The group has completed the reverse takeover of Hankore in Dec 14 and the combined entity named China Everbright Water Limited will have a water treatment designed capacity of 3.4m tonnes/day from 1.57m tonnes/day previously.
Vice-Chairman & CEO Wang Tianyi: China Everbright Water seeks to be among the top water players in China. NextInsight file photo • In addition, as a vote of confidence, the company has entered into subscription agreements with each of International Finance Corporation (IFC) and RRJ Capital (RRJ) in which CEWL will place 120.7m shares at an issue price of S$0.94/share to IFC (49.7m shares) and RRJ (71m shares). IFC, a member of the World Bank Group, is the largest global development institution focused exclusively in the private sector in developing countries, whereas RRJ is an Asian-based investment firm which focuses on private equity investments in China and Southeast Asia.
• With the new monies and the cash flow generated from the current water assets, we think that the company can accelerate its M&A activities and increase its treatment capacities to emerge as one of the top five in China.
OUR VIEW
• CEWL has recently reported its 2014 full-year financials. The company reported net profit of HK$292.8m (+10% yoy) on revenue of HK$1.05b (-19% yoy). The decline in revenue was mainly due to lower recognition of construction services from service concession arrangement. However, as the RTO was only completed in 12 December, the numbers only captured less than 1 month of Hankore’s contribution and the full financial effect will be fully reflected in 2015.
• We view that CEWL will definitely be one of the beneficiaries of China’s water treatment industry reforms where the government will increase investment into the sector with a planned water tariffs increase. As we rework our numbers to include Hankore’s financials, CEWL will report a net profit of HK$508.8m in 2015, a jump of 73.8% which will bring down its valuation to 26.6x from 46.2x.
Intrinsically, assuming the company operates its plants till the end of their concessions with zero M&A activities, the company’s share price value would be at S$0.67/share.
