+ Increasing quantities and enhancing qualities. In retrospect, CEWL secured 19 new projects with a total investment of RMB3.6bn in FY18. The majority of which are upgrades and expansions of the existing waste water treatment (WWT) plants. Accordingly, more than 90% of the projects in the portfolio reached Grade 1A discharge standard by the end of FY18. As of Jan-19, CEWL has a portfolio of 118 projects, 87 are operating, 13 under construction and 13 in the preparatory stage. Meanwhile, 18 WWT projects received tariff hikes ranging from 1% to 165%. It is worth noting that the receivable collection rate averaged at 96%, which showed an improvement of financial management for some projects located in the regions with financial squeeze.
+ Secured more funding with relatively low costs. Following the issuance of the second tranche of the RMB-denominated bonds (panda bonds) with an aggregate principal amount of RMB800mn (RMB400mn from type one and two bonds respectively) in Aug-18, CEWL successfully issued the third tranche of panda bonds with another RMB700mn aggregate principal amount. The coupon rate of the third tranche is 3.89%, lower than the respective type one and two bonds rate of 4.6% and 4.58% in the second tranche and the first tranche of 4.55%. On the other hand, the company also received construction subsidies of more than RMB56mn in 2018.
– WWT capacity growth flattened: The total daily designed WWT capacity reached 5.39mn m3 as of Jan-19 (FY17: 5.34 m3). The target of 10mn m3 daily designed capacity by 2020 cannot be achieved via organic growth.
In terms of business expansion, apart from the ongoing upgrading and expansion works, CEWL will explore other regional markets such as Pearl River Delta and Great Bay Area on top of the Bohai Economic Rim and Yangtze River Delta where the company has been well covering. In terms of business innovation, the company has been levelling up technology application throughout cooperation with German WWT specialists, reinforcement of in-house research and development, and promotion of the intelligent water management system and in the recent years and will further enhance these in the future. In 2019, the environmental protection policies and regulations remain tight, benefiting quality operators like CEWL. Therefore, we believe the company is able to realise stable and healthy growth this year.
Maintain BUY with a higher TP of S$0.48
We raise our target price to S$0.48 (previously SG$0.44) based on FY19e EPS of 5.4 SG cents and the slightly higher peers’ PER of 8.9x (previously 8.8x), and we maintain the BUY recommendation.