Hankore

Hankore: CIMB initiates Coverage with Add rating and $0.156 TP. The house notes that riding China’s increasing environmental awareness, HanKore’s water business will soar on both capacity expansion and rising water tariff. The recently-announced deal with China Everbright International is a major near-term catalyst and will brighten its outlook tremendously. After years of rapid economic growth at the expense of the environment, the public is getting increasingly concerned about the environmental problems that have cropped up. As part of its 12th five-year plan, the Chinese government plans to invest Rmb430bn in wastewater treatment. Given the vast opportunities ahead and a relatively fragmented market, the water treatment industry outlook is bright over the next decade. HanKore recently announced its plan to acquire CEI's water business. After the deal, CEI will own over 60% of HanKore. The benefits to HanKore include: 1) it can leverage CEI’s SOE background in clinching contracts; 2) it could enjoy lower borrowing cost (HanKore: 7.5-8.5%, CEI: 5.0-5.5%); 3) the duo's geographical overlap will lead to stronger presence in certain regions of China. The house SOP-based target price of $0.156 implies a CY15 P/E of 17.3x, less demanding than its peer average of 19.6x.