China Everbright (formerly: HanKore Environmental Tech Group)

[Tiggerbee]

Which is a better buy? China Everbright at 32x PE? SIIC Env at 25x PE? Or Hankore at 55X PE?

[CityFarmer]

I just managed to go thru the announcement, and deciphered the key data

Base on the segment info from CEI AR 2013 page 177, the Net Asset of the Water segment was around HK$3.6 billion (Asset of ~HK$4.9 billion and Liability of HK$1.3 billion). My guess is analysts are base on this number on their analysis.

The NAV in the announcement (page 16) was HK$ 2.0 billion (Asset HK$5.4 billion and Liability 3.4 billion). it seems the liability was pushed-up from HK$1.3 billion to HK$3.4 billion, while asset stays more and less the same, thus the lower NAV.

The actual sale consideration is RMB 5.8 billion, or HK$7.2 billion, which means a P/NAV of 3.6, instead of expected 2.0 or lower by analysts.

The price paid is way too high, even for good assets and paying in share.

http://www.irasia.com/listco/hk/ebchinai...ew0257.pdf

http://infopub.sgx.com/FileOpen/HanKore_...eID=299819

(divested with a small profit)

[greengiraffe]

Just like Hyflux in the last bull cycle, they are all selling a dream based on shortages or currently lack of clean water as a result of the highly polluted Chinese environment.

Moreover, if we look at the deal itself - paying so much for shifting existing assets and possibly new connections with steeply discounted new shares - you just have to think harder, don't you?

Even if you are paying 25x PER for concessions that are of limited concession period (pardon me as I don't know what is the maximum in China now), you are basically betting on management's ability to get a lot more concessions and also assume that they have limited start up issues for each new concession.

There are simply too much grey areas in China water as the tariffs and rules differs for different locations.

Anyway, there are various different ways of doing business and investing one's money. There are plenty of choices - Don't miss the forest just because of say a few trees...

Odd Lot Vested
GG

Which is a better buy? China Everbright at 32x PE? SIIC Env at 25x PE? Or Hankore at 55X PE?

[CityFarmer]

I agree fully with GG. The best entry time for WWT sector is over. It is difficult, if not impossible to buy good WWT stock with PB of 1.x

I recall the good time when Sound Global was only PE <10, and PB of 1.x

The Hankore probably my last attempt on WWT sector, time to hunt for other cheaper alternative

(divested)

Just like Hyflux in the last bull cycle, they are all selling a dream based on shortages or currently lack of clean water as a result of the highly polluted Chinese environment.

Moreover, if we look at the deal itself - paying so much for shifting existing assets and possibly new connections with steeply discounted new shares - you just have to think harder, don't you?

Even if you are paying 25x PER for concessions that are of limited concession period (pardon me as I don't know what is the maximum in China now), you are basically betting on management's ability to get a lot more concessions and also assume that they have limited start up issues for each new concession.

There are simply too much grey areas in China water as the tariffs and rules differs for different locations.

Anyway, there are various different ways of doing business and investing one's money. There are plenty of choices - Don't miss the forest just because of say a few trees...

Odd Lot Vested
GG

Which is a better buy? China Everbright at 32x PE? SIIC Env at 25x PE? Or Hankore at 55X PE?

[BestPrice]

Hankore has became a short sell target, yesterday's short sell volume was:

7,855,000

http://www.sgx.com/wps/wcm/connect/sgx_e...140603.txt

Short term share price might go down further.

[CityFarmer]

I read an article on Hankore, in the latest issue of The Edge. The CEO and analysts are justifying on the recent CEI water asset acquisition.

This is an issue of wrong price on right asset. The asset is right, but the price is excessively overpaid.

The asset is right. I agree with all the justifications given
- Operating assets, with immediate recurring income
- Lower funding cost, with SOE status (hopefully)
- Increased competitiveness with SOE status
- Market consolidation is an unstoppable market trend
- High growth with rising water tariffs and strong policy support

But the price is wrong, IMO

Both American Appraisal and Grant Sherman valuation details are not disclosed. The valuation ranged from RMB 5.4-5.6 billion on CEI water asset, which is reasonable with the Target asset value of HK$5390 million, or RMB 4346 million, with a 20+% premium.

But the asset is packaged with liabilities of HK$3399 million or RMB 2753 million, which is 2.6x higher than previously booked in CEI AR. The liabilities booked in CEI AR 2013, was around HK$1.3 billion, or RMB 1 billion.

The NAV of CEI water asset is around HK$2 billion, or RMB 1.6 billion, and Hankore NAV is RMB 1.9 billion

So the deal seems like Hankore acquiring an asset with book value less than its book value, but paying 4x for it. Hm... very interesting deal...

(not vested, but sharing a view)

[yawnyawn]

Compare to P/B valuation on water treatment industry, the P/B ratio look quite attractive on current price at a price of $1.2.

If is can drop to below $1, i would say it a steal.

My calculation shows BV post-rto to be S$0.36 when HK$1.2B of debt is waived off by CEI.

If Hankore's price is $1.20, it will be trading at 3.4x BV. Not cheap if we comapare to its peers like SIIC or UnitedEnvirotech on SGX.

I have sold my Hankore's shares at a loss. Pretty disappointed with the huge dilution.

At 1.04, it is priced at 2.9x BV post-rto.

[BestPrice]

Hit $1.00 low this morning. Might have a chance to go below $1.00.

[Tiggerbee]

CIMB downgraded the TP to 91c.

[BestPrice]

Wow! 97 cents hit already. Looks like 91 cents might be possible in the coming days.

CIMB downgraded the TP to 91c.