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Green Build Technology: Turning Green Into Gold?
Corporate Digest | 11 November 2015
Related stocks:
Y06
By: Tan Jia Hui
Articles (82) Profile

With the intention to fully dispose of its packaging business, Green Build Technology (GBT) (formerly Youyue International) will be focusing on its green technology business going forward.

Given the increased emphasis of energy and environment conservation within China, particularly in recent years, the firm seems to be in a good position to ride on the trend.

Estate Upgrading With Green Technology
One of the major projects undertaken by the group is the upgrading of existing buildings.

Apart from updating the façade of the buildings, the main purpose of the upgrading works is to improve the insulation of the old buildings – through cladding the outer walls of the buildings, refitting of windows, doors and roofing.

Replacement of outer insulation, from a thinner material (left) to thicker material (right).

Whilst it is almost sunny in Singapore all-year round, citizens in Harbin (Northern China) have to endure harsh winters with temperature dropping below -20 degrees Celsius, hence the need for good building insulation.

With improved thermal insulation, more heat can be trapped within the building, raising the overall indoor temperatures during winter, while at the same time reducing energy consumption from the use of indoor heaters.

China’s central heating system depends largely on coal burning, which inadvertently creates the problem of air pollution. In fact, Harbin made headlines in 2013 as smog blanketing the city in winter forced authorities to shut down schools and the airport.

During Shares Investment’s visit in October, we witnessed some of the ongoing estate upgrading projects that the group was undertaking, as well as the completed pilot town-planning project in Hebai estate.

Ongoing estate upgrading projects – original building façade removed before application of new insulation material and finishing off with a layer of cement and fresh paint.

According to the management, the works are outsourced to contractors, which is a reason why it can undertake larger scale projects (relative to the size of GBT).

The projects that were in-progress during our visit were part of several jobs awarded to the company in February, which will be executed over two to three years and cover a build-up area of about 5 million square metres (sqm) (estimated to generate approximately Rmb825 million in revenue, based on Rmb165 per sqm according to sources).

Underground Utility Tunnel Project
Apart from estate upgrading works, GBT has also managed to secure an underground utility tunnel construction contract, with total investment costs of approximately Rmb947 million ($209.8 million).

The tender was awarded by the Municipal Government of Harbin and forms part of the Chinese central government’s pilot underground utility tunnel program that will be rolled out in 10 cities, including Harbin.

The tunnels will carry utility lines (electricity, water, sewer, gas) and as well as telecommunications and television cables, in replacement of overhead power lines and telecommunications cables and some of the existing old sewage systems (often seen as outdated and lacking).

The group will co-invest around Rmb437 million, as well as act as the main contractor and project manager for the project, which entails the construction of a 12 kilometres (km) underground utility tunnel in Southern Harbin New Town Area.

Works for the project has begun, with completion anticipated in December 2016 after which the group will be in charge of the operations and maintenance of the tunnel for 25 years.

Site of underground utility tunnel project in Southern Harbin with works in the early stages; overhead power lines pose safety issues especially during bad weathers.

For the entire project, the firm will receive government subsidies of roughly Rmb883.7 million over the next 25 years – the amount excludes entrance fees collected by service providers and other operating income.

We note the existence of execution risks for the project, given the relatively short timeframe for construction. Although works have begun, management revealed that some delays are expected for its plan to do up 4km before works ceases due to winter conditions and works will likely restart only after March.

That said, management has expressed upmost confidence on meeting the project timeline.

Beneficiary Of 13th Five-Year Plan?
With the recent conclusion of the fifth plenum in China, the nation’s 13th five-year plan for national economic and social development has been drafted; details of the plan will only be revealed next spring.

While economic growth is likely to remain top priority, it has been widely mentioned that there will be an increased focus on the environmental governance, given the widespread problem of pollution in many cities.

Before the fifth plenum, it was reported that Vice Minister of Housing and Urban-Rural Development Lu Kehua said that the utility tunnels development was likely to be written into the five-year plan.

In the event that the central government decides to expand the scope of utility tunnel projects, GBT is in a good position to benefit from such a move. Being one of the pioneers of such project in Harbin, the group might have the opportunities to partake in such projects that are sizeable.

With an estimated 50 million sqm of build-up area requiring upgrading in Harbin, it opens up the possibility of clinching more estate upgrading projects.

SI Research Takeaway
During the recent trip to Harbin, we were fortunate to be given the chance to learn more about the company and to see some of its projects in action.

Noting that the group has its own research and development team and tie-ups with the education institutes, I look forward to seeing if the company can leverage on this aspect for its future projects.

As GBT places its focus on green technology and related services, the company seems poised for a turnaround in the coming quarters (after recording a loss in 1H15).

While we acknowledge the group’s potential for growth, we think that more certainty with regards to the execution of the utility tunnel project will certainly help boost investors’ confidence – in particular after cash flows coming in from the project is recognized and with the successful completion of the project.

In our opinion, the enacting of a formal dividend policy in the future when cash flows and earnings are more stable – a discussion raised by participants of the site visit – would also help garner interest in the firm.

Armed with a bachelor in mathematics, Jia Hui keeps close tabs on the oil & gas, and manufacturing sectors in Singapore.

Please click here for more information about this author.

Green Build Tech  -- -- --   
Business: Co's principal activities include project-based activities involving energy conservation services & sustainable developments in China.

Insight: Mar-19, FY18 revenue sank 70.1% due to the substan... Read More


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