China Everbright Water - RHB Invest 2016-11-16: Softer Growth Target

China Everbright Water - RHB Invest 2016-11-16: Softer Growth Target CHINA EVERBRIGHT WATER LIMITED U9E.SI

China Everbright Water - Softer Growth Target

  • We maintain BUY on Everbright Water, as the commencement of the extensive Zhenjiang Sponge City Project – awarded early this year – is likely to boost earnings growth in the near term. 
  • However, with intensified competition, we believe it is increasingly difficult for Everbright Water to add 1m-1.5m tonnes of daily treatment capacity per year, going forward. 
  • We cut our DCF-derived TP by 22.5% to SGD0.62 (15% upside), as we think the pace of new project acquisitions will decelerate from here on.

Commencement of sponge city project. 

  • Zhenjiang Sponge City Project was awarded to Everbright Water in April 2016. With the deadline set for inspection in early 2018, we expect the bulk of its sponge city construction revenue to be recognised in FY17. 
  • Operations revenue should also begin rolling in by FY18. We think FY17F-18F bottomline will mainly be supported, since the sponge city is a large-scale project with an investment value of CNY1.4bn.

Panda bonds to mitigate against CNY depreciation. 

  • Everbright Water is planning to issue panda bonds. Management guided that the maturity of the bonds should be either 3+2 or 5+2 years, with coupon rate ranging between 2.9 and 3.5%. As at the end of 3Q16, 38% of the loans are off-shore. 
  • We view the potential bond issue favourably, as it could replace some of Everbright Water’s USD-denominated borrowings to mitigate against CNY depreciation.

Maintain BUY, with lower TP of SGD0.62 (from SGD0.80). 

  • Our FY16F earnings remained largely unchanged but we trimmed FY17F-18F earnings by 7-9% on slower project acquisitions. 
  • We think its current valuation of 13x FY17F P/E is still undemanding, as compared with its historical 17x forward 1-year P/E.
  • Our new TP implies 15.8x FY17F P/E and 0.9x PEG.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2016-11-16
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.62 Down 0.800