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Plant visit to Suzhou & Jinan
We visited CEWL’s water plants in Suzhou and Jinan recently and were impressed with their plant management and strong market positioning in Shandong province. Compared with plants previously under HanKore, CEWL’s water plants have bigger treatment capacity, higher water-discharge standards and higher utilisation rates.
Hive of M&As to continue
During our in-depth discussions with CEO Mr Wang Tianyi and several local plant managers, we sensed management’s confidence in China’s water industry. With the adoption of public private partnerships, it believes more water assets will be released by local governments.
This presents very substantial market opportunities for big SOEs such as CEWL. Mr Wang expects a hive of M&As over the next 3-5 years, at least. CEWL has set a minimum capacity-acquisition target of 1m tonnes for FY15. It may penetrate industrial wastewater treatment, long term.
Adjust TP to SGD1.17 after re-modelling
We continue to believe CEWL can benefit from current industry consolidation. After our financial re-modelling for the combined Everbright-Hankore, our new EPS forecasts are HKD0.22/0.28/0.33 for the next three years. Accordingly, we adjust TP to SGD1.17 from SGD1.26, still at 30x FY15 PER, comparable with HK-listed peers.
