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Maybank Kim Eng 2015-08-31: China Everbright Water - Long-awaited Major Acquisition.

CHINA EVERBRIGHT WATER LIMITED U9E.SI

Long-awaited Major Acquisition 

  • Acquiring Dongda Water for CNY1b, at 25x FY14 P/E. 
  • First major acquisition since merger with HanKore last December. Should enhance confidence in expansion execution. 
  • With the strongest balance sheet among peers, we believe CEWL will be more aggressive in M&As in 2H15. Maintain BUY with M&A catch-up as catalysts. SGD1.06 TP still at 30x FY15 P/E. 


What’s New 

  • CEWL announced a major acquisition over the weekend. Dalian Dongda Water treats municipal wastewater in Liaoning Province and Inner Mongolia. It has 17 such projects with a total capacity of 1.125m tonnes/day. 
  • Upon completion of its acquisition, CEWL's contractual capacity will increase to 4.6m tonnes/day from 3.5m. Total consideration is about CNY1b, which will be paid with internal funds in three phases. CEWL will also provide loans of CNY1.04b to Dongda Water to retire all its debt to its parent. Its acquisition price of CNY1b implies 25x FY14 P/E based on PRC GAAP. This is in line with current market transactions. 

What’s Our View 

  • This is CEWL’s first major acquisition since its merger with HanKore last December. We believe it is bigger than market expectations and valuations are reasonable. The deal should enhance market confidence in management’s ability to execute its expansion. 
  • CEWL continues to catch up with its peers in M&As. With the strongest balance sheet among peers, we believe it will be more aggressive with acquisitions in 2H15. 
  • We keep our EPS unchanged. Maintain BUY rating and TP at 30x FY15 P/E, which is pegged to long-term sector average valuation.


Wei Bin | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-14
BUY Maintain BUY 1.06 Same 1.06


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