CHINA EVERBRIGHT WATER LIMITED
U9E.SI
China Everbright Water - Sponge City Project Is Underway
- Everbright Water’s 2Q17 results came in slightly ahead of our expectation.
- 2Q17 revenue grew 30% YoY to HKD669m on the back of increased construction activities related to the sponge city project and the river basin ecological restoration project.
- PATMI surged 81% YoY, led by stronger revenue, tariff hikes and the absence of forex losses.
- With the sponge city project underway, we believe FY17 would continue to be a strong year for the company.
- Maintain BUY, with an unchanged DCF- based TP of SGD0.54 (13% upside).
Strong set of 2Q17 results.
- China Everbright Water’s (Everbright Water) revenue grew 30% YoY as a result of large projects underway, including the sponge city and restoration of the river basin. Despite a higher proportion of low-margin construction revenue (60% in 2Q17, compared with 53% last year), its overall gross margin was held up due to tariff hikes in five existing projects.
- In addition, administrative expenses also remained stable in spite of the higher operating cost as there was no forex loss in 2Q17. As such, 2Q17 PATMI jumped 81% YoY to HKD141m.
Issue of first tranche of Panda bonds completed.
- The group issued CNY1bn of 5-year corporate bonds at an interest rate of 4.55% last month. We think there could be a marginal increase in finance cost moving forward.
- We think net gearing should not be significantly impacted since the proceeds are meant to repay existing borrowings and replenish working capital.
Strong growth pipeline in the near term.
- YTD, Everbright Water has secured new projects with a total investment value of CNY4.3b. These projects have a total daily wastewater treatment capacity of 255,000 tonnes.
- We also note that four out of seven of the new projects are upgrading works. The group’s treatment capacity, with national Grade 1A standard, would rise to 88% from 78% upon the completion of these four projects.
- We expect to see further tariff hikes when these projects are completed.
Maintain BUY, with a DCF-derived TP SGD0.54.
- With the strong pipeline of projects underway, we think the near-term growth drivers for Everbright Water are secured.
- We make no change to our forecasts at the moment. Note that further additions of new projects would be positive to its share price.
Juliana Cai CFA
RHB Invest
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http://www.rhbinvest.com.sg/
2017-08-08
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