Excerpts from analyst's report

Maybank Kim Eng analyst: Wei Bin

Acquisition spree soon
» Expect acquisitions after completion of CEI deal. Strong policy support to provide near-term catalysts.
» Lowered EPS by 10-15% for new acquisition assumptions.
» Maintain BUY. TP raised to SGD1.26 from SGD1.14 after rollover. Still at 30x FY6/16E EPS.
SGM12.14@ Special General Meeting on Dec 5: The acquisition of water assets of China Everbright International was approved by shareholders. Photo by Ala Zhang.

HanKore has been quiet in the past year due to its exclusivity agreement with China Everbright International (CEI). We believe it will start acquiring aggressively after the Special General Meeting, given sufficient targets in its pipeline and its much stronger financials after the deal.

Government support coming soon
Policy support should provide near-term catalysts for the sector. China’s State Council is likely to approve a Water Pollution Prevention Plan submitted by its National Development and Reform Commission in the next one month.

We expect more stringent wastewater disposal standards and higher treatment coverage. 

The plan is also likely to offer a more detailed timeline for China’s goals. It marks the execution phase of the government’s water pollution-control ambitions. This could force out inefficient, low quality players and propel further industry consolidation.
Still stock to own for FY15; Maintain BUY
HanKore has rallied 20% in the past month but we believe it is still a stock to own for the next 12 months.

As closure of the CEI deal has taken longer than expected, our previous acquisition assumption of 1m tonnes for FY6/15E seems too high. We cut it to 0.5m tonnes, while keeping FY6/16E-17E at 1m tonnes each. As a result, our core EPS for the next three years has been lowered by 15/12/10%. We also roll over to FY6/16E. All in, we raise our TP to SGD1.26 from SGD1.14, still pegged at 30x EPS, peer valuations.  

Recent story: @ HANKORE's AGM: Questions on water tariffs, share price, RTO, etc

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