Hankore

Hankore: strong 1QFY14 results. Net profit leapt 149% y/y to Rmb30.4m, on a 50% jump in revenue to Rmb134.1m. Revenue growth was driven by a 34% and 28% surge in construction revenue and recurring water treatment income respectively, as well as maiden contribution from its newly acquired subsidiary, Tongyong, which provides engineering, procurement and construction (EPC) activities. The group’s gross margin climbed to 46% from 37% y/y, boosted by margin expansion at its two key construction and recurring water treatment businesses. Amid a backdrop of massive government investment channeled toward water projects in China, and more stringent discharge standards required for the water treatment plants, mgt anticipates the progressive increase in revenue contribution from the subsequent expansion of its wastewater projects. It looks forward to the smooth progression of build-out of the current and new phases of its projects, to reap higher expected water discharge fees. In particular - Construction work of Phase 2 and upgrading work of Phase 1 of the group’s Jiangdu Development Zone Wastewater Treatment Plant in Yangzhou City, Jiangsu Province has almost completed in Oct 2013 and will expect to receive higher water discharge fees of RMB1.66 per ton in the near future. - Stage 2 of Phase 1 and upgrading work of Group’s Nanjing Liuhe BOT project has almost completed its construction work and is expected to reap higher water discharge fees as its water discharge quality upgrades from “Grade 1B” to “Grade 1A”. At the $0.062 last close, the counter trades at 0.8x P/B, 11.7x annualized 1QFY14 P/E. This compares with other listed water treatment players such as SIIC Environment (20.3x P/E), United Envirotech (15.1x), Sound Global (11x).