Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Debt Capital Markets

China Water Affairs / Debt Capital Markets

We view CWA as “Medium Risk” on the LARA scale. The Tranfer-Own-Operate business is stable, with steady cash inflows and direct tariff access from end users. Furthermore, receivable days have been relatively low compared to industry peers. However, OCF has been weak in relation to the large upfront capex. There is also a fair amount of business concentration risk as the firm operates within China, specifically in the Southern and Eastern regions. Visibility on the tariff setting framework (cost plus basis) and plans to acquire more water capacity is poor, despite the positive industry dynamics and the government's push to reform the sector. Our credit bias is “Stable” owing to CWA's leading position within the water supply business in China. Furthermore, the TOO model lends itself to a stable, utilities type of cash flows. In addition, CWA collects tariffs upfront from end users in cash, which improves working capital cycle. That said, the business is upfront capital intensive and we expect borrowings to rise in tandem with capex increase, to expand the business. Liquidity is poor due to CWA's borrowings being primarily amortising loans. In our view, the ratings provided by the agencies are fair, while noting that the covenant package is weak. We view the company as “Weak” on the LAGA scale, considering: [1] the controlling shareholder and Chairman Duan Chuan Liang’s government ties may imply potential political risk; [2] track record of the Chairman’s other businesses; and [3] listing regulatory breach in 2007. We take comfort in the fact that the board members are experienced, with a listing track record since 2003 and limited related party transactions. In addition, the presence of several large external investors such as Orix Corporation, IFC and ADB provide some checks and balances. We also note the recent appointment of PwC as auditors, replacing BDO.

We view CWA as “Medium Risk” on the LARA scale. The Tranfer-Own-Operate business is stable, with steady cash inflows and direct tariff access from end users. Furthermore, receivable days have been relatively low compared to industry peers. However, OCF has been weak in relation to the large upfront capex. There is also a fair amount of business concentration risk as the firm operates within China, specifically in the Southern and Eastern regions. Visibility on the tariff setting framework (cost plus basis) and plans to acquire more water capacity is poor, despite the positive industry dynamics and the government's push to reform the sector.  Our credit bias is “Stable” owing to CWA's leading position within the water supply business in China. Furthermore, the TOO model lends itself to a stable, utilities type of cash flows. In addition, CWA collects tariffs upfront from end users in cash, which improves working capital cycle. That said, the business is upfront capital intensive and we expect borrowings to rise in tandem with capex increase, to expand the business. Liquidity is poor due to CWA's borrowings being primarily amortising loans. In our view, the ratings provided by the agencies are fair, while noting that the covenant package is weak.  We view the company as “Weak” on the LAGA scale, considering: [1] the controlling shareholder and Chairman Duan Chuan Liang’s government ties may imply potential political risk; [2] track record of the Chairman’s other businesses; and [3] listing regulatory breach in 2007. We take comfort in the fact that the board members are experienced, with a listing track record since 2003 and limited related party transactions. In addition, the presence of several large external investors such as Orix Corporation, IFC and ADB provide some checks and balances. We also note the recent appointment of PwC as auditors, replacing BDO. 

China Water Affairs - New Issue Assessment - Lucror Analytics

Leading International Investment Research, Edison Investment Research

Edison Investment Research

Leading International Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

Equity Bottom-Up

China Water Affairs Group&rsquo;s (CWA&rsquo;s) reported 59% half-on-half (h-o-h) increase in revenue and 62% operating profit improvement were flattered by HK$1,336m non-cash revenues and a HK$248m non-cash operating profit contribution from a property revaluation. Excluding non-cash effects, h-o-h operating profit increased by 30%. City Water Supply (CWS), CWA&rsquo;s most significant business unit, grew revenue at an underlying rate of 25% h-o-h (70% reported; see Exhibit 3) and operating profit surprised on the upside. We increase our estimates to take account of the improved operating performance and work through various non-cash items in FY17e. Our 1.3% increase in FY18e EBITDA, together with improved cash generation, has the effect of increasing our fair value per share by 9.6% to HK$7.12 from HK$6.52.

China Water Affairs Group&rsquo;s (CWA&rsquo;s) reported 59% half-on-half (h-o-h) increase in revenue and 62% operating profit improvement were flattered by HK$1,336m non-cash revenues and a HK$248m non-cash operating profit contribution from a property revaluation. Excluding non-cash effects, h-o-h operating profit increased by 30%. City Water Supply (CWS), CWA&rsquo;s most significant business unit, grew revenue at an underlying rate of 25% h-o-h (70% reported; see Exhibit 3) and operating profit surprised on the upside. We increase our estimates to take account of the improved operating performance and work through various non-cash items in FY17e. Our 1.3% increase in FY18e EBITDA, together with improved cash generation, has the effect of increasing our fair value per share by 9.6% to HK$7.12 from HK$6.52.

Hong Kong

Kunming Dianchi Water Treatment Co. Ltd. offers water treatment services. The Company provides sewage treatment, recycled water utilization, sewage sludge recycling, and other services. Kunming Dianchi Water Treatment also provides tap water production, atmospheric management, soil remediation, and other services.hina.

Kunming Dianchi Water Treatment (3768 HK)

China Water Industry Group Limited is a water investment and operation and management industry company.

Luzhou Xinglu Water (Group) Co., Ltd. offers water supply services. The Company provides water transmission, system management, network maintenance, and sewage treatment services.

Beijing Enterprises Water Group Limited, through its subsidiaries, develops water treatment systems.  The Group specializes in water services and environmental protection businesses, with waste water treatment as its core business segment.

Guangdong Investment Limited, through its subsidiaries, operates water supply, power and electricity, and infrastructure businesses.  The Company also invests in and develops real estate properties, operates department stores, and provides financial services.

CGN New Energy Holdings Co Ltd is a diversified independent power producer in Asia. The Company has a portfolio of gas-fired, coal-fired, oil-fired, hydro, cogen and fuel cell power generation projects in the People's Republic of China and Korea.

Towngas China Company Ltd. distributes and markets gas.  The Company sells LPG (liquefied petroleum gas) in  bulk and in cylinder, provides piped LPG and natural gas, constructs gas pipelines, operates city gas-pipeline networks and gas stations, and sells LPG  and natural gas household appliances.

Zhongyu Gas Holdings Limited operates in exploration, exploitation, development and production of coal bed methane and the sale of coalbed methane in the PRC. It also develops, constructs and operates natural gas projects in PRC, which include design and construction of natural gas pipeline network and ancillary facilities, and sale and maintenance of natural gas and its appliances.

Binhai Investment Company Ltd, through its subsidiaries, operates gas businesses.  The Company constructs gas pipeline networks, provides piped gas to customers in mainland China, wholesales and retails liquefied petroleum gas (LPG) by way of refueling gas cylinders or tanks for domestic, industrial and commercial customers, and sell LPG equipment and domestic gas appliances.

China Oil and Gas Group Ltd. is engaged in the investments in, and the operation and management of the natural gas and energy related business. Gas operations include city piped gas business, natural gas vehicle refilling stations, pipeline construction and operation, as well as transportation, delivery and distribution of compressed natural gas (CNG) and liquefied natural gas (LNG).

Guangdong Golden Dragon Development Inc. is an investment holding company. Through its subsidiaries, the Company produces and distributes tap water, as well as develop real estate projects.

Guangdong Golden Dragon Development (000712 CH)

VA Tech Wabag Ltd. designs and builds water and sewage treatment plants. The Company constructs sewage treatment, processed and drinking water treatment, effluents treatment, sludge treatment, desalination and reuse plants.  VA Tech Wabag serves municipalities and customers in the power, steel, and oil and gas industries.

Middlesex Water Company treats, stores, and distributes water for residential, commercial, industrial, and fire prevention purposes. The Company operates in New Jersey and Delaware. Middlesex also provides contract water and wastewater management services to municipalities in New Jersey.

TTW PCL (Formerly known as "Thai Tap Water") is a water utility company that supplies water in the provinces of Nakhon Pathom and Samut Sakhon, and Pathumthani-Rangsit area.

Manila Water Co Inc is a full service water utility company serving the Philippine market.

Jiangsu Jiangnan Water Company Limited supplies and sells water, provides water drainage and related water treatment services.  The Company's scope of business includes the design and technical consulting of water supply engineering, water quality testing, water meter design and testing, investment in public infrastructure industries.

Athens Water Supply & Sewage Co. SA collects, treats and distributes drinkable water in the Attica region. Athens Water Supply recycles water and drains it to the sea.

Athens Water Supply & Sewage C (EYDAP GA)

Qianjiang Water Resources Development Co., Ltd. generates hydroelectric power. The Company also supplies tap water and develops hydro-power resources.

Harbin Hatou Investment Co., Ltd. generates electric power and heat power  that are supplied to Harbin local area.  The Company also manufactures cement and fertilizers.

Harbin Hatou Investment Co, Ltd. (600864 CH)

The York Water Company impounds, purifies, and distributes water throughout York County, Pennsylvania.

China Water Affairs Group Limited, through its subsidiaries, supplies city water and sewage treatment.  The Company supplies raw water and tap water, treats sewage, constructs water supply pipe networks, and installs water meters.

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China Water Affairs (855 HK)

China Water Affairs - New Issue Assessment - Lucror Analytics

We view CWA as “Medium Risk” on the LARA scale. The Tranfer-Own-Operate business is stable, with steady cash inflows and direct tariff access from...

Lucror Analytics

Continuing growth

China Water Affairs Group’s (CWA’s) reported 59% half-on-half (h-o-h) increase in revenue and 62% operating profit improvement were flattered by...

Edison Investment Research

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