SINGAPORE (Nov 15): RHB is maintaining its “buy” call on China Everbright Water (CEW) with a target price of 54 cents.
This came after the group announced 3Q17 earnings were up by 35% y-o-y to HK$122.8 million ($19.7 million), but down 14% q-o-q.
In a Wednesday report, RHB believes that the q-o-q decline was mainly due to the uneven revenue recognition pattern of the RMB1.4 billion ($287 million) Zhenjiang sponge city project, which is based on construction milestones at various subprojects.
Meanwhile, revenue for the quarter came in at HK$746.1 million, 35% higher than HK$553.5 million a year ago, due to the increase in revenue from the group’s construction segment.
See: China Everbright Water posts 3Q earnings increase 35% to $19.7 mil on higher revenue
Financial expenses saw a 28% q-o-q increase of HK$1.1 billion in net borrowing for the quarter.
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RHB believes that the group will use the proceeds raised by the panda bond in 3Q17 to pay down part of its old debt in the future.
The group has three large public-private partnership (PPP) projects coming up, which RHB expects will make significant contribution to the bottomline in the upcoming quarters.
The first project is the Zhenjiang sponge city project worth RMB1.4 billion, which was 32% completed in 3Q17 and should be about 37% completed by end-2017.
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The second project – Nanning Shuitang River project – worth RMB1.5 billion has started construction in Sept and the group expects up to 25% of the works to be done in 4Q17.
See: Everbright Water wins Guangxi river restoration PPP project
The third project or the Zhangqiu project is a RMB396 million environmental park that would start construction first and it should be 10% completed by end-2017.
“Although revenue recognition may not strictly follow the construction completion ratio, we believe it is still a reliable indicator and therefore increase our construction revenue forecast for 2018-2019,” says RHB.
As at 10.02am, shares in CEW are trading at 45 cents or 0.93 time FY17 book.
