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3 Reasons Why China Everbright Water Is On Our Radar Screen
Corporate Digest | 13 May 2015
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By: Louis Kent Lee
Articles (199) Profile

Since the successful reverse takeover (RTO) of HanKore Environment Tech Group (HanKore) by China Everbright International last December, China Everbright Water (CEW) has been making waves and are being watched closely by market onlookers.

Most are watching because this reverse takeover, essentially brings forth the possibility of CEW setting the tone to become one of the top three players in the China wastewater sector.

China Everbright International Injects Water Assets

Previously known as HanKore, CEW was formed after the injection of all of its water assets into HanKore in the RTO by China Everbright International.

After the RTO, China Everbright International became the largest shareholder within CEW with a 78 percent stake.

During Shares Investment’s visit, we saw the water plants in Suzhou and Jinan and were pleasantly impressed by the management of the plants in place.

CEW has got a strong market positioning in the Shandong province.

The enlarged capacity (Hankore’s assets + China Everbright International’s assets) taken together, also boasts higher utilisation rates and higher water discharge standards.

Essentially, the designed treatment capacity for the combined company will see a water treatment designed capacity of 3.4 million tonnes/day, as compared to 1.57 million tonnes/day previously.

Strong Industry Tailwinds
A month ago in April 2015, an announcement was made by the Chinese government on its water pollution prevention plan.

The announcement covered on plans pertaining industrial wastewater treatment, municipal wastewater treatment, pollution prevention treatment, and treatment from agricultural activities.

Specific targets and stricter regulations were set. The plan is aimed to provide wastewater treatment coverage for 95 percent of Chinese cities and 85 percent of Chinese countries by 2020.

Also, wastewater treatment has to achieve Grade 1A standards by 2017.

This is not difficult for CEW as most of its assets are already running at this superior standard.

Reforms to accelerate water pricing mechanisms by the local governments was also urged in the announced plan, where all cities must adopt tiered pricing systems by 2015.

This should likely push water tariffs up, allowing players like CEW to get more per tonne treated.

More Room For M&A

We are aware that CEW has set an internal acquisition target of reaching 1 million tonnes for FY15.

Also, it is highly encouraging to see CEW securing the Ju County Project.

This further endorses CEW’s strength in the Shandong Province, and marks the first project secured by CEW following its spin-off listing on the Singapore Stock Exchange.

Ju County Project has a designed daily waste water treatment capacity of 40,000 m3 and its water discharged complies with the Grade 1A national standard.

The top 10 players in the waste water treatment scene together hold less than 20 percent of the entire market share.

There are approximately 170 million tonnes/day of industry capacity in the market, with some 50 percent still held by the government, while state owned enterprises and private players hold some 20 percent – 30 percent of the capacity.

It is highly likely there will be consolidation in this space which will see the sale of assets from both the small players and the government in the next few years.

As CEW was focused on the internal integration after the reverse takeover, it seemingly slowed down the pace of its market expansions.

However, CEW expressed that it is now fully prepared.

Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

Please click here for more information about this author.

China Everbright Water  0.325 +0.005 +1.56%   
Business: Co is involved in the environmental water business, including wastewater treatment, reusable water projects and wastewater heat pump projects in PRC.

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