China Everbright Water - CIMB Research 2016-07-15: Gradual asset expansion

China Everbright Water - CIMB Research 2016-07-15: Gradual asset expansion CHINA EVERBRIGHT WATER LIMITED U9E.SI 

China Everbright Water - Gradual asset expansion

  • Though small (Rmb50m), CEWL's recent Shudong project win marks its 2nd in Ju County, possibly a testament to its WWT capabilities and track record.
  • Together with Xinyi and Maidao WWT projects, CEWL has accumulated 0.34mt/d of additional capacity (translating into capex of Rmb718m) so far in 2016.
  • Maintain our FY16-18 forecasts, DCF-derived target price (7% WACC) and Add call.

2nd WWT project win in Ju County, China

  • CEWL recently announced its acquisition of Ju County Shudong wastewater treatment (WWT) project in Rizhao City, Shandong Province.
  • This build-operate-transfer (BOT) project has a designed capacity of 0.02mt/d and 30-year concession period, with a national Grade 1A standard requirement. The project has an estimated investment cost of Rmb50m, and is expected to be completed and commence operations in 2017.
  • This is CEWL’s 2nd project win in Ju County, following the win of Ju County Chengbei WWT transfer-operate-transfer (TOT) project back in May 2015. Such successive project wins reflect the recognition given by provincial governments to the company, and we believe there would be more of such projects in regions where CEWL already has a presence, thereby allowing the company to reap economies of scale.

Positive updates on earlier projects

  • CEWL also announced good progress in its previous projects, namely Zhangqiu No.1 and No.2 WWT plants, Ji’nan WWT (Plant 1) and Ji’nan Xike WWT (Plant 4). 
  • Other than the Ji’nan Xike WWT plant, all these plants have achieved operating status, and are expected to contribute to CEWL's treatment income in 2H16.

Secures Xinyi and Maidao WWT projects

  • CEWL also recently won other sizeable projects: 
    1. a 51% joint venture for Xinyi PPP project, with a total projected investment cost of Rmb300m and 0.09mt/d designed capacity, as well as 
    2. Maidao WWT upgrading project (0.14mt/d) for Rmb208m.

Maintain Add, with unchanged TP of S$0.81

  • We keep our estimates and DCF-based target price of S$0.81 (WACC:7%) intact, as CEWL's capex needs still fall within our assumptions. 
  • Potential catalyst to the stock could be greater clarity and development on sponge city projects, while downside risk to our Add call are slower-than-expected project wins and longer-than-expected receivables.

NGOH Yi Sin CIMB Securities | Roy CHEN CIMB Securities | Keith LI CIMB Securities | 2016-07-15
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.81 Same 0.81