China Everbright Water: 1Q15 results in line. Net profit advanced 44% to HK$104.6m on revenue of HK$436.3m (+80%), as the quarter saw the first full quarter contribution from HanKore.
Top-line was led by a HK$111.5m rise in construction revenue contribution from the undergoing upgrading and expansion work of Binzhou Boxing and Suzhou Wuzhong waste water treatment project, as well as increase in operating (+HK$42.1m) and finance income (+HK$40.6m).
Gross margin decreased to 50% (1Q14: 55%), mainly due to a larger portion of construction revenue recognized.
Bottom-line was aided by a 234% rise in other income to HK$9.0m, due to the increase in government grant received, for the efforts made on sewage and emission reduction by Jiangyin water plants during the period.
This was partially offset by a 129% rise in admin expenses to HK$45.8m following the inclusion of HanKore into the group, and a 142% rise in finance costs to HK$37.1m.
Going forward, CEWL is guiding that the unveiled Clean Water Action Plan together with more investments and stringent legislation enforcement present huge market potential and will speed up the industry restructuring. The group aims to be one of the leading water companies in PRC within the next three to five years.
Maybank-KE highlights that so far CEWL has not announced any major acquisitions yet, despite completing the share placement with IFC on 21 Apr ‘15. The house believes that CEWL has sufficient projects in their pipeline, and that stronger balance sheet and high expectation from its parent could make CEWL more aggressive in M&A going forward.
Overall, the house is maintaining its Buy call with TP of $1.17, which is pegged to 30x FY15E P/E.
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