China Everbright (formerly: HanKore Environmental Tech Group)

[CityFarmer]

To share with fellow special situation investing buddies:

For those familiar with special situation investing by Joel Greenblatt, a special situation investing means taking advantage of index and mutual fund managers' "dumping", due to mismatch of their holdings with mandates.

In Hankore case, instead of index and mutual fund managers, I had taken advantage of speculators. The "dumping" was triggered by their "cut-losses" and impatience for a suppose long-haul negotiation process.

Hankore is neither an index component, nor a RTO involve different businesses, so it shouldn't be a typical candidate of the special situation investing. After I observed the huge involvement of speculators, a slightly different special situation investing story was mulled.

The story may not work, but it is likely due to poor execution, than the story itself, IMO

Speculators are our friends indeed..

(vested in Hankore)

[CityFarmer]

CIMB latest report on the company. A summary of the report below. You can get the full report from the link below. The report is having the lower TP among other analyst reports, TP of $0.125 after CEI deal, and $0.091 when no deal.

Few doubts?
- Valuations derived from CY14 (Dec 2013), rather than the latest 3Q (Mar 2014)?
- The valuation of water asset, base on same source, but having different value in this report, comparing with the previous report 2 months ago?
- The latest share base also not right? 5228 mil instead of 5091 mil ? May be the fully diluted number is used, but non-diluted number was used in the previous report 2 months ago.
- The EPC valuation is base on the same 8X CY15 P/E, but the value has been changed from the previous report?

Well, should I take it seriously? Hm...

(vested)
---------------
HanKore Environment Tech Group - Loss expected, eye on CEI Deal
No thanks to the one-off fair value loss of Rmb110m from its contingent
liabilities to Tongyong and the marking-to-market of its warrants, HanKore’s
9MFY6/14 net profit was in the red, as expected. Core earnings were broadly in
line with our expectation at 78% of our full-year forecast. Due to the net effect
of the reclassification of certain expenses as non-recurring and some downward
adjustments of projected EPC revenues, we raise our FY14-15 EPS estimates by
3.2% and 6.0%, respectively. The deal with China Everbright International (CEI)
remains a key near-term catalyst. We upgrade from hold to Add, with a CY14
SOP-based target price of S$0.125, based on the scenario that HanKore
purchases CEI’s water assets at 1.3x trailing NAV.

http://remisiers.org/cms_images/research...ybreak.pdf

[CityFarmer]

OSK-DMG analyst report on the company.

HanKore Environment: Operationally Sound – CEI Merger a Key Catalyst
(BUY, SGD0.096, TP: SGD0.161)
Sarah Wong, +65 6232 3883. (sarah.wong@sg.oskgroup.com)
Terence Wong, CFA,+65 6232 3896 (terence.wong@sg.oskgroup.com)

9MFY14 core operational profit came in at CNY88.0m. One-off non-cash fair value loss was CNY130m, with no impact on cashflow. CEI merger remains a key catalyst and we believe the deal is likely to materialize, given the incentives and complementary nature of union. We think current valuation has already priced in a no-deal scenario: that provides a margin of safety for an entry position. Keep BUY, SGD0.161 TP. 9MFY14 core operations’ net profit up 146.2% y-o-y to CNY88.0m, meeting c.65% of our FY14F estimates. One-off non-cash fair value loss from the accounting on contingent liability relating to acquisition of Jiangsu Tongyong and warrants came up to CNY130m. Apart from that, there will be a delay of three months in the upgrading and expansion work at Jiangsu Suzhou Wuzhong plant, prompting us to lower/increase EPC revenue estimates for FY14F/FY15F. Finance expenses came in higher due to higher borrowings, and we raise the former to CNY64.7m (from CNY54.4m). As a result, we lower FY14F core net profit estimate to CNY111.8m (from CNY135m).

CEI merger remains a key catalyst. The exclusivity period for the acquisition of CEI water assets was extended to 31 May 2014 due to the complexity of the deal. This remains the key game-changing catalyst for HanKore, with CEI bringing to the table: i) significantly lower financing costs, thereby allowing WWT project IRRs to improve significantly and raising profitability; and ii) providing cheaper access to funds to acquire more WWT capacity to attain goal of 10m tonnes/day design capacity in 3-5 years. We note that HanKore’s management has expressed strong commitment and focus to consummate the merger.

Maintain BUY with TP SGD0.161. We continue to value HanKore at 25x
FY15F P/E, assuming the CEI merger materialises, which we believe is likely, considering the strong incentives from both parties and the complementary nature of the union. In the case that it does not materialize, we think HanKore is worth 15x FY15F P/E, deriving a fair value of SGD0.097. We think that current valuation has already priced in a no-deal scenario and that provides a margin of safety for an entry position. BUY.

http://remisiers.org/cms_images/research...atters.pdf

[brattzz]

if CEI M&A does not happen, don't think price will hold at S$.097 leh, MOS really?

[greengiraffe]

http://infopub.sgx.com/Apps?A=COW_CorpAn...uddies.com

[greengiraffe]

FF Wong just confirmed that Boustead has sold its 10m (post consolidation) of Hankore shares for good profits.

[CityFarmer]

FF Wong just confirmed that Boustead has sold its 10m (post consolidation) of Hankore shares for good profits.

Is the confirmation via SGX announcement?

Post-consolidation means sold just few days ago.

(vested)

[greengiraffe]

FF Wong just confirmed that Boustead has sold its 10m (post consolidation) of Hankore shares for good profits.

Is the confirmation via SGX announcement?

Post-consolidation means sold just few days ago.

(vested)

Actually, he mentioned during the results media cast. Think its before consolidation. He mentioned they held 100m shares @ $0.04, sold close to $0.12. About half the gains already booked with the balance into this year.

[brattzz]

waos! 3 bagger for FF Wong! Huat Har!

[ksir]

I am curious, accounting wise, how to split the gain in 2 different FY?
I take it as sold half before 31 Mar 2014?