ALP STOCK INVESTMENT CLUB (3MAY2015)
China Everbright Water Limited/ U9E
May 3 close: S$ 1.12
Target price: S$ 0.80
1.) Sector: Waste management
2.) Core business structure: The Group’s core business areas include municipal wastewater treatment, water recycling, water supply, sludge treatment and Engineering, Procurement & Construction (“EPC”)
3.) Segment that generates the highest revenue: The group got two segments, one is BOT/TOT wastewater treatment and the other is EPC services. BOT/TOT contributes 75.9% of the group total revenue.
4.) Countries that the business operates: China
5.) Challenges: The group massive debt would hinder its future expansion if it does not take any action. However, its debt is mainly for expansion purposes.
6.) Strengths : Currently, China’s waste-water treatment segment is highly fragmented with the Top Ten players accounting for only 25% of the market share. The push for the privatisation of public-service assets and Public–Private– Partnership (PPP) Model bode well for the Group as approximately half of the municipal waste-water treatment capacities are still being held by local governments. This presents huge market potential for future capacity additions for the Group.
7.) Significant events: On 2 June 2014, the Group entered into a conditional sale and purchase agreement with China Everbright Water Holdings Limited (“CEWHL”), a wholly-owned subsidiary of Everbright International Limited (“CEI”) , to acquire the entire issued and paid-up capital of China Everbright Water Investment Limited (“CEWIL”). After completion of the acquisition, HanKore will serve as CEI’s sole platform for its wastewater treatment business and CEI will then hold approximately 78% stake in HanKore. At the same time, HanKore shall be renamed as China Everbright Water Limited. This acquisition manifests an important strategic step for both parties towards a shared vision to become one of China’s largest water companies.
8.) GTI Ranking: 503
10.)Recommendation: HOLD. The group has potential to expand further in the future as attested by its growing revenue. However, its huge negative operating cash flow is worrying as it could means that the group would have less cash to meet its huge debt obligation. From the beginning of 2014, during the China State Council executive meeting, emphasis was placed on the need to increase rate for wastewater treatment and recycled water usage to 85% and 20% respectively at the end of 12th Five-Year Plan. According to the recently published “China Water Industry Market Research Report (2014 edition)” by the Research Center of H2O China, the total market size of China’s water industry will exceed RMB1 trillion over the next five years. The water industry in China will continue
to make progress in line with its national policies with new opportunities arising.
COMPILED BY: Zhang xin
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
 Due to the overhaul and upgrade works on certain plants, the disposal of some plants, and the lack of construction activities in FY2011, the revenue in FY2011 was lower than that of the preceding year.