C&G Environmental Protection

[Nick]

Investors seeking a slice of the waste to energy pie in China may wish to study C&G which deals extensively with WTE projects. It is the 3rd largest player in China in terms of its capacity. At the moment, the Company has secured 10 BOT plants which will be completed by 2012. At the moment, only 1 is under operation and 3 were recently completed in the previous month and should generate income in 2011. C&G seems to have technology on its side judging by its recent patent wins, its ability to meet the very stringent Euro II emission standards and securing RMB 16 million cash grants from the Government.

Based on its 9M 10 statement, the company's sole operating BOT plant generated RMB 42 million worth of income and RMB 24 million gross profit hence yielding a gross margin of 57%. Company's 2011 earnings should increase substantially since the completion of the 3 plants will double its treatment capacity to 3,600 tonnes/day.

However, BOT plants is a capital draining operation since significant capex is needed to build the plant while it generates 0 income. Hence interested shareholders should examine their debt, loan maturity and cash position to determine whether it can truly finance the construction of the remaining 6 plants over the next 2 years.

Articles from nextinsight:
http://www.nextinsight.net/index.php/sto...or-meeting

http://www.nextinsight.biz/index.php/sto...-this-year

Will appreciate comments from forummers with knowledge on this industry/company.

(Not Vested)

[Jeff]

I like its biz, the future is good since China has huge market on its biz and government is promoting that.

But I have 2 doubts in its latest Q3 report.
1. Seems it still not yet cleared its previous chip & yarn biz? (profit/loss of discontinued operation, 39,xxx )
2. its huge intangible assets 1.6b RMB! it had a couple of patents, but I dont believe it worth that much.

vested.

[Nick]

I like its biz, the future is good since China has huge market on its biz and government is promoting that.

But I have 2 doubts in its latest Q3 report.
1. Seems it still not yet cleared its previous chip & yarn biz? (profit/loss of discontinued operation, 39,xxx )
2. its huge intangible assets 1.6b RMB! it had a couple of patents, but I dont believe it worth that much.

vested.

Hi Jeff,

C&G is in my watch-list but I will wait for a few more plants to be completed and generating some income first just to be safe.

1) They sold the chip & yarn business for US$45 million. The disposal was completed on 31 Aug 2010. It shouldn't have any impact on Q4 results.

2) Unless I am mistaken, I believe the intangible assets refers to the service concession receivables. This is the value of the BOT contract over the 25-30 year period. It will decrease with time. It is the expected cash-flow which the contract will generate over its life-time. Not the same as good will. It is being used as collateral for its bank loans.

Intangible assets:

The Group has entered into a number of service concession arrangements with certain governmental
authorities in the PRC on a BOT basis in respect of its waste-to-energy power business. These service
concession arrangements generally involve the Group as an operator (i) constructing waste-to-energy power
plants for those arrangements on a BOT basis; (ii) operating and maintaining the waste-to-energy power
plants to generate electricity and transmit to local electricity grid for periods ranging from 27 to 30 years (the
“service concession periods”). The Group will be paid for the garbage treatment and electricity transmitted to
electricity grid over the service concession periods at prices stipulated through a pricing mechanism. The
Group is entitled to use all the property, plant and equipment of the waste-to-energy power plants, however,
the relevant governmental authorities as grantors will retain the beneficial entitlement to any residual interest
in the waste-to-energy power plants at the end of the term of the service concession periods. Those service
concession arrangements do not contain a renewal option.

[Nick]

C&G EP, the third largest WTE player in China (in terms of projected capacity), announced a slew of operational updates this month.

C&G expands environmental offerings with first sludge treatment BOT project in Jinjiang city

- Expects to commence operations in 2Q2011 with preliminary capacity of 200 tons per day
- Additional revenue streams from the sale of electricity to state grid and sludge treatment services with minimal construction cost
- Superior technology in sludge treatment marks maiden presence in China

http://info.sgx.com/webcoranncatth.nsf/V...70033D044/$file/CG_Jinjiang_Sludge_BOT_Project.pdf?openelement

C&G commences production of its second WTE plant in Hui’An, Fujian province

- Successfully gained access to the business of deriving revenue from the sale of electricity to Hui’An state grid
- Expects plants in Anxi and Fuqing in Fujian province as well as Huangshi in Hubei to enter into commercial production in coming months

http://info.sgx.com/webcoranncatth.nsf/V...C0031C90E/$file/CG_Press_Release_HuiAn_Plant.pdf?openelement

C&G activates its third WTE plant in Huangshi, Hubei province

- Operation will be launched in two phases with daily waste treatment
capacity of 1,200 tons
- Superior patented technologies used increases electricity production rate by a range between 13% to 17%, significantly reducing investment and maintenance cost
- Waste treatment capacity will be further enhanced with the commencement of Anxi and Fuqing plant in the coming months

http://info.sgx.com/webcoranncatth.nsf/V...30034CAAF/$file/CG_Press_Release_Huangshi_Plant.pdf?openelement

If it continues to execute the development of its BOT plants well and the demand is sufficient to maintain full capacity, C&G should see a significant rise in both earnings and cash-flow in the coming quarters as its projects steadily becomes operational.

Based on its current share price of 17.0 cents, the market capitalization stands at S$165.4 million. The key question is whether can it generate in excess of $20 million profit and perhaps distribute a quarter of it ($5 million) to its shareholders to give a yield of 3.0% when all of its plants are operational within the next 2 years ? It generated gross profit of S$5.9 million for FY 2010.

(Not Vested)

[PkNanas]

C&G sold its core China business, and this disposal has just been completed.

Total consideration of the disposal is RMB1.85b, comprised of
- RMB1.1b cash;
- RMB750m in purchaser share, issued at RMB8.34

The company just annouced Initial Special Interim Dividend of S$0.04844/share.
Does it imply, there will be 2nd and more & final dividend coming?

Purchaser is China listed SOE, Grandblue, code 600323.

Since completion of disposal, the company mainly comprised of cash and holding of Purchaser stocks.

Based on today closing price of RMB14.14 of Grandblue, C&G is very much undervalued, based on its today closing price of $0.31

Did some search on Grandblue, and surprised to learn that GIC and Temasek holds small stake in Grandblue.
http://money.finance.sina.com.cn/corp/go...e/30.phtml

Shareholders distribution:
Major shareholder C&G Holdings (hong kong) Limited owns 79.6%.

2nd largest shareholder, recently increased his stake to 6.98%.

Combined this, there is hardly free float. If this 2nd largest shareholder is friendly party to the largest shareholder, will C&G Holdings (Hong Kong) Limited try to do a General Offer and delist the Company?

Vested.