CHINA EVERBRIGHT WATER LIMITED (SGX:U9E)
China Everbright Water - Securing More Upgrade Contracts
- China Everbright Water’s FY18 new project wins estimated at Rmb3.6bn, up from Rmb3.4bn in FY17.
- Riding on government requirements of higher treatment standards.
- Focus more on project upgrades.
- Maintain BUY with Target Price of S$0.475.
Attractive valuation.
- We maintain our BUY rating on CHINA EVERBRIGHT WATER LIMITED (SGX:U9E). The company is progressing well in securing more projects, riding on the increasingly stringent requirements in water treatment standards by the government. It is getting more project extensions which allow capacity expansion, upgrade of treatment standards and higher tariffs.
- In addition, it is extending into new business areas such as leachate treatment. With earnings growth at low-to mid-teens, its current valuation of < 7x FY19 PE is not demanding.
Good deal flow unnoticed by the market.
- We reckon investors have not factored in China Everbright Water’s ability in securing good projects, including Ji’nan Zhangqiu urban-rural integration water supply project, Laiyang water environment management public-private partnership (PPP) projects.
- YTD, China Everbright Water has project wins of Rmb3.6bn, bringing the total order backlog to > Rmb5bn. The strong project pipeline will sustain decent earnings and high earnings visibility.
Dual listing in Hong Kong.
- China Everbright Water is seeking a dual listing in Hong Kong through a global offering. Although the timing of the listing remains uncertain, we reckon this would help expand the company’s shareholder base and improve share liquidity.
Valuation:
- Our Target Price is set at S$0.475 which is based on 15x 12-month rolling adjusted PE (stripping out construction revenue).
Key Risks to Our View:
- Delays in construction progress and slow deal flow would result in slower-than-expected earnings growth.
Patricia YEUNG
DBS Group Research
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https://www.dbsvickers.com/
2019-01-16
SGX Stock
Analyst Report
0.475
SAME
0.475
