• Decent growth of 25% in 3QFY15, slightly below our Decent growth of 25% in 3QFY15, slightly below our expectation expectation
• Expect tariff hike for more projects Expect tariff hike for more projects
• M&A strategy to continue M&A strategy to continue
• Maintain BUY with TP of S$0.79
Maintain BUY with TP of S$0.79 25% growth in 3QFY15 net profit
China Everbright Water (CEWL) reported a 63% and 25% growth in turnover and net profit for 3QFY15 respectively. The robust growth in revenue was attributable to higher construction revenue from project expansion and upgrade, as well as higher operating income and finance income. 9MFY15 net profit reached HK$300m, accounting for 61% of our estimate (vs 81% for FY14).
CEWL is making good progress in tariff revision. After Binzhou Boxing project which has successfully raised its tariff by 17.3% following an upgrade of discharge standard, projects in Ji’nan Licheng and Zibo have also raised tariff by 12.3% and 17% respectively due to compensation for the reduction in VAT rebate. We believe more projects will revise up the tariff. In addition, we expect growth potential of newly acquired Dalian Dongda will materialize subsequently through more project upgrade, expansion of connectivity and increase in penetration. We also expect CEWL to continue to increase its market share through more M&A.
We have trimmed our earnings forecasts by 10-17% as our current estimations seem to be too aggressive. Despite this, we maintain our BUY rating because of its robust earnings growth of 20-29% for FY16 and FY17. We have raised our target PE from 30x to 35x to reflect more optimistic market sentiment for China’s next Five Year Plan. Although CEWL rebounded >15% from the trough in the past four weeks, our target PE of 35x is still attractive, compared with the sector average of c.39x. New TP is set at S$0.79. (Read Report)
Source : DBS Group Research