HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Canvest Environmental Protection Group / Equity Bottom-Up

Canvest Environmental Protection Group (0XC SW)

<ul>
<li>The 25.6% increase in net profit for <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> in 1H22 is a resilient show given cost inflation and pandemic/lockdowns in the period.</li>
<li>Good pipeline should support growth for the next two years as projects under construction/planning accounted for 54% of the existing capacity in Aug.</li>
<li>Canvest's expectation that gearing has peaked suggests that it will start deleverage in next year. This is a positive message in an industry traditionally with weak cashflow.</li>
</ul>


The 25.6% increase in net profit for Canvest Environmental Protection Group (1381 HK) in 1H22 is a resilient show given cost inflation and pandemic/lockdowns in the period.
Good pipeline should support growth for the next two years as projects under construction/planning accounted for 54% of the existing capacity in Aug.
Canvest's expectation that gearing has peaked suggests that it will start deleverage in next year. This is a positive message in an industry traditionally with weak cashflow.


Canvest Env (1381 HK): Streaming Ahead Despite Tough Time

China Everbright Water / Equity Bottom-Up

<ul>
<li>A slow 1H22 new project momentum and a slight retreat in net profit are not expected to materially alter the positive outlook for <a href="https://www.smartkarma.com/entities/china-everbright-water-limited" target="_blank" data-smartkarma-citation="entities:31446:1" rel="noopener">China Everbright Water (1857 HK)</a>. </li>
<li>We estimate project pipeline equals to about 28% of its existing operating capacity. They will underpin growth prospects over the next two years.</li>
<li>New project growth should accelerate in 2H22 given the increase in local governments' special purpose bonds issue. Cost inflation is expected to moderate sequentially as well.</li>
</ul>


A slow 1H22 new project momentum and a slight retreat in net profit are not expected to materially alter the positive outlook for China Everbright Water (1857 HK). 
We estimate project pipeline equals to about 28% of its existing operating capacity. They will underpin growth prospects over the next two years.
New project growth should accelerate in 2H22 given the increase in local governments' special purpose bonds issue. Cost inflation is expected to moderate sequentially as well.


China Everbright Water (1857 HK): Long-Term Pipeline Stays Resilient

Hua Han Health Industry / Equity Bottom-Up

<ul>
<li>The sharp plunge in share price of <a href="https://www.smartkarma.com/entities/china-conch-environment-protection-holdings-ltd" target="_blank" data-smartkarma-citation="entities:4827:1" rel="noopener">China Conch Environment Protection Holdings (587 HK)</a> has not yet brought its valuations back to more reasonable levels and we see more downside.</li>
<li>Its 10.1x PER for FY22F is at a significant premium over peer average. Even taking into account the impressive ROE, we still cannot find justifications for its high P/B multiple.  </li>
<li>Negative catalysts include overly aggressive expansion target, slower profit growth than rise in capacity and surge in gearing and finance costs - they will potentially lead to earnings disappointment.</li>
</ul>


The sharp plunge in share price of China Conch Environment Protection Holdings (587 HK) has not yet brought its valuations back to more reasonable levels and we see more downside.
Its 10.1x PER for FY22F is at a significant premium over peer average. Even taking into account the impressive ROE, we still cannot find justifications for its high P/B multiple.  
Negative catalysts include overly aggressive expansion target, slower profit growth than rise in capacity and surge in gearing and finance costs - they will potentially lead to earnings disappointment.


Conch Environment (587 HK): Don't Overly Bet on the Blue Sky Scenario

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

Beijing Enterprises Urban Resources / Event-Driven

Beijing Enterprises Urban Resources (3718 HK)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/beijing-enterprises-urban-re" target="_blank" data-smartkarma-citation="entities:29131:1" rel="noopener">Beijing Enterprises Urban Resources (3718 HK)</a> composite document is out with the MGO’s first closing date of 17 June. The IFA considers <a href="https://www.smartkarma.com/entities/beijing-enterprises-water-group-limited" target="_blank" data-smartkarma-citation="entities:1660:1" rel="noopener">Beijing Enterprises Water Group (371 HK)</a>'s offer fair. </li>
<li>The MGO is conditional on the offeror and concert parties holding more than 50% of the voting rights. With the offeror currently at 44.16%, the MGO should become unconditional. </li>
<li>At last close and for a 28 June payment, the gross and annualised spread to the MGO price (including final dividend) of HK$0.81 per share is 2.5% and 31.5%, respectively.</li>
</ul>



Beijing Enterprises Urban Resources (3718 HK) composite document is out with the MGO’s first closing date of 17 June. The IFA considers Beijing Enterprises Water Group (371 HK)'s offer fair. 
The MGO is conditional on the offeror and concert parties holding more than 50% of the voting rights. With the offeror currently at 44.16%, the MGO should become unconditional. 
At last close and for a 28 June payment, the gross and annualised spread to the MGO price (including final dividend) of HK$0.81 per share is 2.5% and 31.5%, respectively.


Beijing Enterprises Urban Resources’ MGO Open, First Closing Date 17 June

<ul>
<li>Following listing of <a href="https://www.smartkarma.com/entities/china-conch-environment-protection-holdings-ltd" target="_blank" data-smartkarma-citation="entities:4827:1" rel="noopener">China Conch Environment (587 HK)</a>, <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 (586 HK)</a> is seeking a spin-off of CV Green Energy in A-share market and we view this move positively.</li>
<li>Limited details are currently available, but we think CV Green Energy, which operates WTE businesses, will trade at significantly higher multiples than its Hong Kong peers. </li>
<li>Assuming CV Green Energy to hold all Conch Venture's WTE businesses, we estimate the IPO will boost the latter's sum-of-the-parts value by 8% or HK$2.14 per share.</li>
</ul>


Following listing of China Conch Environment (587 HK), China Conch Venture (586 HK) is seeking a spin-off of CV Green Energy in A-share market and we view this move positively.
Limited details are currently available, but we think CV Green Energy, which operates WTE businesses, will trade at significantly higher multiples than its Hong Kong peers. 
Assuming CV Green Energy to hold all Conch Venture's WTE businesses, we estimate the IPO will boost the latter's sum-of-the-parts value by 8% or HK$2.14 per share.


Conch Venture (586 HK): Another Spin-Off in the Pipeline

Hong Kong

China Everbright Environment Group is a global leader in environmental protection, specializing in integrated environmental solutions. It is recognized as the world's largest waste-to-energy investor and operator, also providing waste management, water treatment, and renewable energy services. The company was founded in 1993 and is headquartered in Hong Kong.

China Everbright Environment Group (257 HK)

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China Everbright Environment Group (257 HK)

Canvest Env (1381 HK): Streaming Ahead Despite Tough Time

After a good start in 1H22, we think there is room for Canvest's earnings to further improve in 2H22. Its improved cash flow and potential to...

Osbert Tang, CFA

China Everbright Water (1857 HK): Long-Term Pipeline Stays Resilient

CE Water has a weak 1H22 result but we think the performance will improve in 2H22. It has a resilient project pipeline which is enough to support...

Osbert Tang, CFA

Conch Environment (587 HK): Don't Overly Bet on the Blue Sky Scenario

There still exists downside risk on CCEP despite the 64% fall in share price since listing; and key negative catalysts are overly aggressive...

Osbert Tang, CFA

Beijing Enterprises Urban Resources’ MGO Open, First Closing Date 17 June

With the offeror currently at 44.16% of voting rights, the MGO should become unconditional. For a 28 June payment, the annualised spread to the MGO...

Arun George

Conch Venture (586 HK): Another Spin-Off in the Pipeline

The proposed spin-off of CV Green Energy in Shanghai should benefit Conch Venture's valuations given the higher multiples for waste-to-energy...

Osbert Tang, CFA

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