Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p><em><strong>This week in StubWorld ...</strong></em></p>
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<p><a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> remains highly elevated as <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement (914 HK)</a> faces possible deletion from the FTSE China A50 Index.</p>
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<p>Preceding my comments on China Conch/Anhui Conch are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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This week in StubWorld ...



China Conch Venture Holdings (586 HK) remains highly elevated as Anhui Conch Cement (914 HK) faces possible deletion from the FTSE China A50 Index.



Preceding my comments on China Conch/Anhui Conch are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: China Conch Venture (586 HK) Trading Rich

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Everbright Environment Group / Equity Bottom-Up

China Everbright Environment Group (257 HK)

<p>In the latest update by <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a>, the tone is generally bullish for the outlook in the next two years. We think the key drivers include the growth from operational projects, good capacity expansion potential, positive track of receivable collections, upside on waste treatment tariffs and manageable capex to support new projects. We see it to achieve resilient EPS CAGR of 20% but trading on just 4.8x PER and 0.67x P/B, the stock remains deeply undervalued. </p><p>CEE believes that the efficiency of its waste-to-energy projects can improve as electricity generated per tonne still has good room to rise and it will also look into more M&amp;A opportunities under the 14th 5-year Plan. Meanwhile, CEE seeks to increase the waste treatment tariffs following the central government's policy to increase the share of subsidy responsibility of the local governments. All these should point to better profitability going forward, in our view.</p>

In the latest update by China Everbright Environment (257 HK), the tone is generally bullish for the outlook in the next two years. We think the key drivers include the growth from operational projects, good capacity expansion potential, positive track of receivable collections, upside on waste treatment tariffs and manageable capex to support new projects. We see it to achieve resilient EPS CAGR of 20% but trading on just 4.8x PER and 0.67x P/B, the stock remains deeply undervalued. CEE believes that the efficiency of its waste-to-energy projects can improve as electricity generated per tonne still has good room to rise and it will also look into more M&amp;A opportunities under the 14th 5-year Plan. Meanwhile, CEE seeks to increase the waste treatment tariffs following the central government's policy to increase the share of subsidy responsibility of the local governments. All these should point to better profitability going forward, in our view.

China Everbright Environment (257 HK): Management Updates Suggest Resilience

<p>We think that after the spin-off of <a href="https://www.smartkarma.com/entities/china-conch-environment-protection-holdings-limited" target="_blank" data-smartkarma-citation="entities:34405:1" rel="noopener">China Conch Environment Protection Holdings (CEP HK)</a>, the businesses being left with <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> will be even smaller and render it more like a holding company. We think such development is not positive to Conch Venture, and also, based on our sum-of-the-parts valuation; it is trading on 4% premium, suggesting that there is minimal upside from here, in our view.</p><p>What's left with Conch Venture will mainly be the waste incineration solution business, or waste-to-energy, but its capacity is significantly behind that for <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a> and <a href="https://www.smartkarma.com/entities/canvest-environmental-protection-group-co-ltd" target="_blank" data-smartkarma-citation="entities:100:1" rel="noopener">Canvest Environmental Protection Group (1381 HK)</a>. Also, the remaining assets (excluding <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement (914 HK)</a>) will see slower earnings growth than with CEP.  The 16% rally in share price since Sep should have reflected most of the news. We have also provided in this Insight a matrix table indicating the SOTP value for different levels of CEP's PER and A-share price of Conch Cement. </p>

We think that after the spin-off of China Conch Environment Protection Holdings (CEP HK), the businesses being left with China Conch Venture Holdings (586 HK) will be even smaller and render it more like a holding company. We think such development is not positive to Conch Venture, and also, based on our sum-of-the-parts valuation; it is trading on 4% premium, suggesting that there is minimal upside from here, in our view.What's left with Conch Venture will mainly be the waste incineration solution business, or waste-to-energy, but its capacity is significantly behind that for China Everbright Environment (257 HK) and Canvest Environmental Protection Group (1381 HK). Also, the remaining assets (excluding Anhui Conch Cement (914 HK)) will see slower earnings growth than with CEP.  The 16% rally in share price since Sep should have reflected most of the news. We have also provided in this Insight a matrix table indicating the SOTP value for different levels of CEP's PER and A-share price of Conch Cement. 

Equity Capital Markets

China Conch Environment Protection Holdings / Equity Capital Markets

China Conch Environment Protection Holdings (CEP HK)

China Conch Environment Protection Holdings

<p>We believe the spin-off by introduction of <a href="https://www.smartkarma.com/entities/china-conch-environment-protection-holdings-limited" target="_blank" data-smartkarma-citation="entities:34405:1" rel="noopener">China Conch Environment Protection Holdings (CEP HK)</a> by <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> will leave more clarity to the business of both companies. Fundamentally speaking, we think CEP is a solid company with a focus on cement kiln waste treatment services for solid and hazardous waste in China.</p><p>The key positives for CEP are a leadership position in the industry, excellent new project pipeline momentum and strong relationship with its partners, in our view. However, the key negatives are declining margins, concentrated business lines and small market capitalisation. We estimate that CEP's market cap will be just HK$4.98bn and HK$6.38bn, based on the average PER of the peers (5.9x) and high-end of peers (7.6x). </p>

We believe the spin-off by introduction of China Conch Environment Protection Holdings (CEP HK) by China Conch Venture Holdings (586 HK) will leave more clarity to the business of both companies. Fundamentally speaking, we think CEP is a solid company with a focus on cement kiln waste treatment services for solid and hazardous waste in China.The key positives for CEP are a leadership position in the industry, excellent new project pipeline momentum and strong relationship with its partners, in our view. However, the key negatives are declining margins, concentrated business lines and small market capitalisation. We estimate that CEP's market cap will be just HK$4.98bn and HK$6.38bn, based on the average PER of the peers (5.9x) and high-end of peers (7.6x). 

Conch Environment: Initial Thoughts on the Listing by Way of Introduction

China Conch Venture / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> (CCV) has <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0928/2021092801185.pdf" target="_blank" rel="noopener">proposed</a> spinning-off and separately listing the shares of Conch Environment Protection (CEEP), a company principally engaged in providing industrial solid and hazardous waste treatment in the PRC. Here is the listing application form (<a href="https://www1.hkexnews.hk/app/sehk/2021/103856/documents/sehk21092801397.pdf" target="_blank" rel="noopener">Form A1</a>).</p>
<p>CEEP comprised ~17% of the unlisted revenue of CCV in FY20 and ~35% of the profit.</p>
<p>The spin-off will be implemented by way of distribution in-specie - CCV will not retain any interest in CEEP. This is a listing by introduction - no IPO proceeds are involved.</p>
<p>Assuming CEEP's listing goes ahead (no shareholder approval is required), the remaining unlisted ops comprise waste incineration projects, energy-saving equipment, and port logistics.</p>
<p>Separately, I see CCV trading at a 6% discount to its NAV, its narrowest inside a year. The implied stub has never been narrower.</p>
<p>More below the fold.</p>

China Conch Venture Holdings (586 HK) (CCV) has proposed spinning-off and separately listing the shares of Conch Environment Protection (CEEP), a company principally engaged in providing industrial solid and hazardous waste treatment in the PRC. Here is the listing application form (Form A1).
CEEP comprised ~17% of the unlisted revenue of CCV in FY20 and ~35% of the profit.
The spin-off will be implemented by way of distribution in-specie - CCV will not retain any interest in CEEP. This is a listing by introduction - no IPO proceeds are involved.
Assuming CEEP's listing goes ahead (no shareholder approval is required), the remaining unlisted ops comprise waste incineration projects, energy-saving equipment, and port logistics.
Separately, I see CCV trading at a 6% discount to its NAV, its narrowest inside a year. The implied stub has never been narrower.
More below the fold.

China Conch Venture (586 HK): Waste Treatment Spin-Off

China

China Conch Venture is an environmental and industrial services company specializing in waste disposal, including industrial solid, hazardous, and domestic waste treatment. It provides waste-to-energy solutions, manufactures environmental equipment and building materials, and offers port logistics services. Headquartered in Wuhu, Anhui, China, the company was founded in 2006.

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China Conch Venture (586 HK)

StubWorld: China Conch Venture (586 HK) Trading Rich

Anhui Conch may be subject to FTSE China A50 Index deletion in December. Yet the market is assigning HK$15.1bn (US$1.94bn) more to China Conch's...

David Blennerhassett

China Everbright Environment (257 HK): Management Updates Suggest Resilience

CEE sees growth from operational projects, good capacity expansion potential, positive track of receivable collections, upside on waste treatment...

Osbert Tang, CFA

Conch Venture (586 HK): Not Much Left

We see Conch Venture not cheap at the current level, and the spin-off of Conch Environment will make it even more like a holding company. The...

Osbert Tang, CFA

Conch Environment: Initial Thoughts on the Listing by Way of Introduction

Conch Environment's key postives are leadership position, good pipeline and strong partner relations. The key negatives are declining margins,...

Osbert Tang, CFA

China Conch Venture (586 HK): Waste Treatment Spin-Off

CVV's recent price action suggests news leakage ahead of CCEP's spin-off, with shares gaining 14% compared to 5% for Anhui. I'd be inclined to set...

David Blennerhassett

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