Hankore / China Everbright Intl

Hankore / China Everbright Intl (257 HK) : CEI announced the completion of injecting CEI's entire water assets into Hankore in exchange for a 79.2% interest in the merged company. This move would increase CEI's attributable water capacity by 45% to 2,750k tpd, and support a 28% net profit enhancement for CEI's environmental water business segment in 2015e (or 4% of CEI's total net profit). Hankore will change its name to China Everbright Water. Daiwa views the CEI deal with Hankore as a near term earnings catalyst for CEI's environmental water business. As at Oct '14, CEI had 21 WWT plants in operation with total capacity of 1,855k tpd and 1WWT plant at the preparation stage with capacity of 75k tpd. Hankore operates a total of 11 WWT projects with total operating capacity of 745k tpd while its total water treatement contracted capacity (incl WWT, water supply and water reclamation ) is 1,570k tpd. Daiwa has an Outperform rating on CEI with TP HK$12.20, implying 24x FY15e P/E, supported by CEI's status as the only HK-listed large cap China WTE operator with a solid execution record and decent project portfolio.