■ 2Q15 net profit up 10% YoY, driven by HanKore consolidation
■ CEWL needs to become more aggressive in M&A going forward
■ Cut EPS by 2-10% due to lower acquisition assumption. Maintain BUY with TP SGD1.06, at 30x FY15E PER
HanKore consolidation drove growth
2Q15 revenue grew 93% YoY to HKD510m and net profit rose 10% YoY to HKD110m. Since 2Q14 numbers did not consolidate HanKore’s financials as the RTO was only completed in 4Q14, a YoY comparison is not very meaningful. On QoQ basis, revenue and gross profit grew 17% and 4% respectively. GPM dropped 5.6ppt, which might be attributable to higher percentage of construction revenue. Net profit grew 10% QoQ thanks to lower finance cost. Big acquisitions needed 1H15 net profit only accounted for 39% of our full-year forecast.
Management has set a minimum wastewater treatment capacity acquisition target of 1m tons. Big acquisitions are needed for the rest of the year to achieve that goal given CEWL has not done much M&A YTD. CEWL has completed the SGD113m share placement with IFC in April and obtained USD140m loan facilities from IFC last week. We believe it has a big enough war chest for expansion. Rich cash position and high expectation from Everbright Group could make CEWL more aggressive in M&A going forward.
Maintain BUY on CEWL as we believe, with strong government background and robust balance sheet, CEWL is well positioned to benefit from industry consolidation
. But as its acquisition YTD has fallen behind schedule, we cut our FY15 capacity acquisition assumption to 0.5m tons from 1m tons previously but keep our FY16/17 assumption at 1m tons each year. We also factored in lower financing cost thanks to IFC loan facilities. As such, EPS forecasts were cut 2-10% for the next three years and TP is adjusted to SGD1.06 from SGD1.17, still pegged to 30x FY15 PER
. (Read Report)
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Source : Maybank Kim Eng Research
Labels: China Everbright Water, S-Chips, Water Sector