China Water: Maybank-KE continues to overweight the sector, highlighting that industry consolidation remains the key impetus for investing in China’s water sector.
A still-fragmented market and the Chinese government’s unrelenting push for consolidation should sustain the M&A wave and market sentiment.
Based on the house findings, of the 170m tonnes/day of industry capacity, around 50% is still held by governments, while SOEs and private companies hold 20%/30%. As such, the house believes there will be abundant assets for sale in the next few years, from both governments and small private companies.
China’s water industry has been consolidating since 2010, with year-to-date transaction values reaching US$1.6b, 6x the figure during the same period last year and 36% of 2014’s amount.
Singapore-listed companies have been very active in corporate actions so far this year, and the house expects all the three water companies under its coverage - China Everbright Water (Buy: TP $1.26), SIIC Environment (Buy: TP $0.20) and United Envirotech (Buy: TP $1.92) - to benefit from the industry consolidation.
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