China Everbright Water

China Everbright Water: (S$0.75) First major acquisition since merger with HanKore
China Everbright Water (CEW) is making its first major acquisition since its merger with HanKore in Dec '14, with a ~Rmb1b price tag for waste water treatment company Dalian Dongda Water, in line with current market transaction prices.

The target has 17 waste water treatment projects with a capacity of 1.125m tons/day, located across Liaoning Province and Inner Mongolia in China.

Upon completion, group's total capacity is expected to jump 30% to 4.6m tons/day.

CEW has been rather quiet on the acquisition front for the past eight months, which resulted in impatience among investors and market watchers.

Notably after its 2Q15 results posted in early Aug, Maybank-KE cut its FY15 capacity acquisition assumption to 0.5m tons from management's guidance of 1m, given that CEW has only achieved 4% of that target to-date.

Without a doubt, the house is expected to change its earnings assumption yet again and we do not rule out that the major transaction will work to enhance market's confidence on management's execution ability.

It is generally expected that investment in China's water sector will increase significantly, supported by favourable government policies, for instance, the public-private partnership model, which would provide new opportunities to the private sector water players.

At the current price, CEW is valued at 22.4x forward earnings, compared to China-listed peers Tianjin Capital Environmental Protection (37.9x), Beijing Enterprises Water (21.7x) and CT Environmental Group (23.4x).