Hankore

Hankore: In an interview with The Edge magazine, HanKore’s Chairman, Chen Dawei lamented that analysts and investors do not realize the significance of the reverse-takeover of China Everbright International's (CEI) water assets by HanKore, with most preferring to only focus on the value of the assets. Chen argues that the deal is not as simple as HanKore just purchasing CEI assets, but about the merger of two listed companies, and the RTO will see HanKore standing a better chance to grow its water business, as it transforms into a state-owned enterprise (SOE). With the government as the primary driver in China’s water sector, Chen highlights that SOEs would have stronger bargaining power in their negotiation of projects, while financial costs are also expected to be lower. As a guide, the International Finance Corp, who counts itself as a major lender to CEI offers 10-year loans to CEI at just 2.25%, resulting in an average financing cost of 4% versus HanKore’s 7-8%. While Chen’s future as the Chairman of the new company is not certain, he plans to remain invested in the new entity. Overall, Maybank-KE remains positive on the prospects of China’s water sector on the premise that the current high sector valuations can be justified by robust EPS growth and potential for more EPS-accretive M&As. The house believes that China’s water sector is poised for a golden era in the next three years, with rising water tariffs, strong government policy support and industry consolidation fuelling rapid growth. Maybank-KE foresees ample organic and inorganic growth opportunities, and continues to prefer companies with high-quality assets that generate recurring income stream such as Hankore Environment and SIIC Environment.