HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Everbright Environment / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a> will benefit immensely from the lower debt burden of local governments as the central government rolls out more fiscal support measures.</li>
<li>We anticipate an acceleration in receivable collection to improve its cash flow while the new projects pipeline may speed up. Its FCF has positively turned around in 1H24.</li>
<li>Despite recent outperformance, it remains a laggard since 2022. Still, it trades on an undemanding 5.5x PER and an appealing 6.3% yield on a higher dividend payout. </li>
</ul>



China Everbright Environment (257 HK) will benefit immensely from the lower debt burden of local governments as the central government rolls out more fiscal support measures.
We anticipate an acceleration in receivable collection to improve its cash flow while the new projects pipeline may speed up. Its FCF has positively turned around in 1H24.
Despite recent outperformance, it remains a laggard since 2022. Still, it trades on an undemanding 5.5x PER and an appealing 6.3% yield on a higher dividend payout. 


China Everbright Env (257 HK): An Underappreciated Beneficiary

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

Canvest Environmental Protection Group / Event-Driven

<ul>
<li>
<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> disclosed a pre-conditional Cayman scheme privatisation from <a href="https://www.smartkarma.com/entities/grandblue-environment-co-a" target="_blank" data-smartkarma-citation="entities:17887:1" rel="noopener">Grandblue Environment Co A (600323 CH)</a> at HK$4.90 per share, an 11.6% premium to the last close price.</li>
<li>The precondition relates to the completion of capital injection into the offeror, Grandblue shareholder, and regulatory approvals. The heavy presence of SOE entities makes this a formality.</li>
<li>While not a knockout bid, the offer (which is final) is reasonable. Shareholders with blocking stakes will be supportive. Timing is the key risk as the offer is long-dated.</li>
</ul>



Canvest Environmental Protection Group (1381 HK) disclosed a pre-conditional Cayman scheme privatisation from Grandblue Environment Co A (600323 CH) at HK$4.90 per share, an 11.6% premium to the last close price.
The precondition relates to the completion of capital injection into the offeror, Grandblue shareholder, and regulatory approvals. The heavy presence of SOE entities makes this a formality.
While not a knockout bid, the offer (which is final) is reasonable. Shareholders with blocking stakes will be supportive. Timing is the key risk as the offer is long-dated.


Canvest Environmental (1381 HK): Grandblue’s Pre-Condition Privatisation at HK$4.90

<ul>
<li>
<a href="https://www.smartkarma.com/entities/grandblue-environment-co-a" target="_blank" data-smartkarma-citation="entities:17887:1" rel="noopener">Grandblue Environment Co A (600323 CH)</a> disclosed a potential pre-conditional privatisation of <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> at HK$4.90 per share, a 20.7% premium to the last close price. </li>
<li>Completing the capital injection from SOE entities into the offeror is a precondition. Grandblue also proposes that the controlling shareholder roll over 7.23% of its effective 44.75% stake. </li>
<li>While not a knockout bid, the offer is reasonable. Shareholders with blocking stakes should support a binding proposal. Timing is the key risk. </li>
</ul>



Grandblue Environment Co A (600323 CH) disclosed a potential pre-conditional privatisation of Canvest Environmental Protection Group (1381 HK) at HK$4.90 per share, a 20.7% premium to the last close price. 
Completing the capital injection from SOE entities into the offeror is a precondition. Grandblue also proposes that the controlling shareholder roll over 7.23% of its effective 44.75% stake. 
While not a knockout bid, the offer is reasonable. Shareholders with blocking stakes should support a binding proposal. Timing is the key risk. 


Canvest Environmental (1381 HK): Possible Privatisation at HK$4.90

<ul>
<li>Despite a 3.8% decline in FY23 net profit, <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a>'s profitability has still outperformed its peers by significant magnitudes. </li>
<li>Positive notes in the result are an increase in operation service revenue proportion, expansion in EBITDA margin, improvement in financial position, and addition of new projects.</li>
<li>It is easy for CEE to achieve the market expectation of a 9.8% growth in FY24. Yet, it just trade on 3.6x PER, 8.5% yield, and 0.34x P/B. </li>
</ul>


Despite a 3.8% decline in FY23 net profit, China Everbright Environment (257 HK)'s profitability has still outperformed its peers by significant magnitudes. 
Positive notes in the result are an increase in operation service revenue proportion, expansion in EBITDA margin, improvement in financial position, and addition of new projects.
It is easy for CEE to achieve the market expectation of a 9.8% growth in FY24. Yet, it just trade on 3.6x PER, 8.5% yield, and 0.34x P/B. 


China Everbright Environment (257 HK): Being Penalised Too Much

<ul>
<li>Plunge in net profit, high gearing and slowdown in new projects are market concerns, but should have well reflected in its share price. Its 3.6x PER is just too cheap. </li>
<li>FY23 will see profit recovery, backed by decent project pipeline and lack of one-offs like impairment and exchange losses. Consensus forecast of 15% profit growth is too conservative.</li>
<li>Cash flow will improve over the next two years as collection of national subsidies accelerates, capex moderates and contribution from operating projects increases. </li>
</ul>


Plunge in net profit, high gearing and slowdown in new projects are market concerns, but should have well reflected in its share price. Its 3.6x PER is just too cheap. 
FY23 will see profit recovery, backed by decent project pipeline and lack of one-offs like impairment and exchange losses. Consensus forecast of 15% profit growth is too conservative.
Cash flow will improve over the next two years as collection of national subsidies accelerates, capex moderates and contribution from operating projects increases. 


China Everbright Environment (257 HK): The Dust Should Have Settled

China

China Everbright Greentech Limited focuses on green technology businesses. The Company engages in projects revolving around biomass, hazardous waste treatment, and solar and wind energy.

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China Everbright Greentech (1257 HK)

China Everbright Env (257 HK): An Underappreciated Beneficiary

CEE is poised to benefit from a lower local government debt burden on increased fiscal support, with improved cash flow, accelerated project...

Osbert Tang, CFA

Canvest Environmental (1381 HK): Grandblue’s Pre-Condition Privatisation at HK$4.90

While not a knockout bid, the offer (which is final) is reasonable. Shareholders with blocking stakes will be supportive. Timing is the key risk as...

Arun George

Canvest Environmental (1381 HK): Possible Privatisation at HK$4.90

While not a knockout bid, the offer is reasonable. Shareholders with blocking stakes should support a binding proposal. The key risk is the timing...

Arun George

China Everbright Environment (257 HK): Being Penalised Too Much

There are positive messages in FY23 result: an increase in operation service revenue proportion, expansion in EBITDA margin, improvement in...

Osbert Tang, CFA

China Everbright Environment (257 HK): The Dust Should Have Settled

FY23 outlook has brightened as it will be supported by healthy project pipeline and lack of one-off items. There is potential for financial...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

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China Everbright Env (257 HK): An Underappreciated Beneficiary

​CEE is poised to benefit from a lower local government debt burden on increased fiscal support, with improved cash flow, accelerated project...

Osbert Tang, CFA

Canvest Environmental (1381 HK): Grandblue’s Pre-Condition Privatisation at HK$4.90

While not a knockout bid, the offer (which is final) is reasonable. Shareholders with blocking stakes will be supportive. Timing is the key risk as...

Arun George

Canvest Environmental (1381 HK): Possible Privatisation at HK$4.90

While not a knockout bid, the offer is reasonable. Shareholders with blocking stakes should support a binding proposal. The key risk is the timing...

Arun George

China Everbright Environment (257 HK): Being Penalised Too Much

There are positive messages in FY23 result: an increase in operation service revenue proportion, expansion in EBITDA margin, improvement in...

Osbert Tang, CFA

China Everbright Environment (257 HK): The Dust Should Have Settled

FY23 outlook has brightened as it will be supported by healthy project pipeline and lack of one-off items. There is potential for financial...

Osbert Tang, CFA

CEE is poised to benefit from a lower local government debt burden on increased fiscal support, with improved cash flow, accelerated project...