SIIC Environment Holdings Ltd
SIIC Environment Holdings Ltd
Use external data from yahoo finance, POEMS, Wall Street Journal, Morningstar
1) Business Outlook
Lines of business + Prospects
2) SWOT
P
E
S
T
1) China’s water and environmental markets. water treatment, water supply, solid waste, treatment and other environment-related businesses. Tremendous growth and continues to increase its market share in China’s water and environmental sector.108 water treatment and supply projects and 4 waste incineration projects across 18 municipalities and provinces in China, two-pronged strategy of focusing on organic growth and acquisition-driven expansion
2) explore new markets such as industrial wastewater, treatment, seawater desalination, sludge treatment and handling, soil treatment, renewable energy, water technology and pollution control, thereby strengthening its top-tier position in China’s water and environmental industry.
3) Related Companies - Shanghai Industrial Holdings Ltd. acquired a controlling stake and completed debt restructuring in Asia Water. It was renamed SIIC Environment.
acquisition of 60% of the issued and paid-up share capital of Ranhill Water (Hong Kong) Ltd (“Ranhill Water”). Ranhill Water is a wholly-owned subsidiary of Malaysian utility conglomerate Ranhill Holdings Berhad and provides waste water treatment services mainly to industrial parks in China on concession contract basis
acquired additional 32.7% of the equity interest in Longjiang Environmental Protection Group Co., Ltd. (“Longjiang Group”).
equity interest of 58% in Longjiang Group, for which Longjiang Group becomes a subsidiary of the Company. Longjiang Group holds more than 40 water treatment, water supply and sludge treatment projects in China, with a total water treatment and supply design capacity of 3.59 million tons/day. This acquisition is one of the landmark transactions in China’s water sector and is of strategic importance to the Group in the northeast region.
4) double-digit financial growth in FY2016 with total revenue recording a 46.8% year-on-year increase to RMB2.65 billion and net profit attributable to shareholders surging 26.2% to RMB454.93 million.
5) Chinese government remains steadfast in its commitment to environmental conservation and pollution reduction, and new policies and trends bode well for the Group’s overall operations and performance.
December 2016, the Chinese government issued a 13th Five-Year plan outlining that China would invest about RMB560 billion in the wastewater treatment facilities and pipelines construction between 2016 and 2020. Its National People’s Congress (“NPC”) Standing Committee also approved China’s first Environmental Protection Tax (“EPT”) Law, which will replace the existing pollutant discharge fee system with a pollution tax as the main economic tool regulating environmental pollution by businesses.
“Notice of Formulation and Adjustment of Sewage Treatment Fee Standards” published in 2015, China’s local governments were tasked to review and revise wastewater treatment fees by the end of 2016. This tariff revision programme has been carried out substantially. The price adjustment varies based on the different cities and locales, but is expected to increase by an average of 17% across the board.
Zhou Jun Executive Chairman, member of the Executive Committee of the 12th Chinese People’s Political Consultative Conference in Shanghai
Yang Chang Min Executive Director 20 years of experience in operation and management of water business.
Li Zheng Fu, Executive Director of Capital Operation Department at China Energy Conservation and Environmental Protection Group (Government body)
Huang HangGuang - General Manager, 20 years of experience in the water treatment industry, Worked in government bodies
HEAVILY INDEBTED, NO GO ESPECIALLY IN FOREIGN MARKETS!!!
To monitor in Watchlist on progress
Porter 5 Forces (Pricing Power)(Franchising)
Threat of New entrants
Bargaining power of suppliers
Bargaining power of Buyer
Threat of substitutes in products and Services
Rivalry among existing competition
Organisational Life Cycle What type of stock it is and what I am looking out for.
Growth rate
Beta
CAPM (required rate of Return)( Rename Beta, Obtain adjusted Beta, Use STI ETF as Rm,
Company Geometric Return
2) Financial Ratio Health Analysis with peers
Profitability
Net profit margin
Operating profit margin
Liquidity/ Leverage
Cash Ratio = (Cash + cash equivalents) / Current liability
Current Ratio = (Current Asset / Current Liability)
Debt ratio = (Total Liability / Total Asset)
Quick Ratio
Operating cash flow
Investing cash flow
Financing cash flow
Performance
Return on Asset
Sales Turnover
Earnings Per Share
Return on Investment
Tax Retention Rate (tax efficiency, higher better) = (EBIT - tax exp) /EBIT
Interest Expense Rate (lower better) = int exp / Totalasset
Return on Equity
Dupont ROE analysis - Profit Margin x Asset Turnover x Financial Leverage
ROE = Net Income/Net Sales x Net Sales/Total Asset x Total Asset x Common Equity
3) Valuation Models
1) DDM = V=D(1+g)/(Re-g)
i) Requires consistent Dividend policy and payout
ii) Gorgon constant Growth model
iii) Good to value mature companies with stable growth, profit, dividend growth
iv) Not good to value companies prone to macroeconomic and cyclical factors, large fluctuation in profits and dividend growth
2) FCFE
Net Profit After tax
- (CAPEX-dep exp)(1-debt ratio)
- (Change in working capital)(1-debt ratio)
= FCFE
i) Estimate of Equity Capital Usage, Determine whether Dividend and stock repurchases is paid via free cash flow or other financing methods. If FCFE > Dividend payment and cost to buy back shares, Company is using debt of existing capital for share buyback, essentially propping up share price.
ii) Good to value growth companies and start-ups with no dividends.
iii) Cannot value companies with drastic change in working capital.
iv) focus on net profit after tax, ignore cash flow issues such as investments in fixed assets, net borrowings and working capital.
3) Price Earnings Ratio = Market P / Earnings per share
i) Must have consistent earnings and growth, take average of 4 quarters
ii) Use to compare companies within same industry, Low P/E undervalued and great performance, High P/e investors expect high earnings growth
iii) Essential to do Dupont analysis, Can be manipulated by increasing leverage
iii) Not good to Value start-ups, loss making, unstable profits or growth focused company.
iv) Not good to value economies with high inflation, insufficient discounting factors time value of money
4) Price per book value = Market P / Book Value
i) Low P / BV = undervalued or fundamental weakness, how much is company worth after liquidating everything
ii) Only use to compare with companies in same industry, with positive book value, short run negative earnings
iii) Not Good for Companies focusing on Branding and Goodwill (BAML), change in accounting methodology, Comparison across countries, Change in technology, change in asset prices (depreciation, amortisation, appreciation), inflation or present market of assets, improved products and services.
iv) Not good for technology companies (No fixed assets) and consistent loss making companies.
5) Price Sales ratio = Market P / Sales per share
i) Less Prone to Accounting manipulations, Low P/S undervalued or not profitable
ii) Only compare between close competitors, when company no P/E ratio or no earnings.
iii) Good to value start-ups, growth companies, unprofitable companies at mature phase
iv) Not good as it ignores expenses and liabilities
Compare with Mkt P on fixed date, Over/Under Valued, Buy / sell
DDM
FCFE
P/E
P/B
P/S
4) Buy / Sell Decision
1) Fundamental Target Price Range
2) Consider Support Resistance Lines
3) Consider Technical Analysis input by POEMS
4)Consider Analyst consensus opinion, Favouring stocks with minimal analyst coverage
5) Buffet Valuation Checklist Business Tenets
1) Is business simple and understandable? (choose companies within your circle of competence, not the size of the circle but rather how defined are its parameters)
2) Does Business have consistent operating history? (Operating performance, Cash Flow especially for SME)
3) Does business have favourable Long term Prospects? (American Steel industries decline, avoid commodities, Porter's 5 forces - choose franchises that products are needed and desired, with no close substitutes, unregulated, quality, weak competitors. branding / quality allowing company to retain market and pricing power to pass on costs to consumers)
Management Tenets
4) Is management rational and track record of competence? (SMRT clowns)
5) Does business have strong track record and consistent good leadership and management (management changes, adopting of technology, recognition of fundamental changes in economy)
6) Does management resist institutional imperative? (Manager Mismanagement and inertia to change)
7) What is the ROE? (Revenue, Expenses, Cash Flow, Labour relations, pricing flexibility, capital allocation needs). Look out for cash flow, indebtness and changes in interest rates
8) What is the company's owner earnings?
9) What are the operating margins?
10) Has company created at least 1 dollar of market value for every dollar retained?
Value Tenets
11) What is the value of the company (Intrinsic, Book, Market). Buy a good company at an undervalued Price. Buy a very good company at a fair price as good companies are closely monitored
12) Can it be purchased as significant discount to its value? (undervalued, Very good prospects / projects)
s,
Use external data from yahoo finance, POEMS, Wall Street Journal, Morningstar
1) Business Outlook
Lines of business + Prospects
2) SWOT
P
E
S
T
1) China’s water and environmental markets. water treatment, water supply, solid waste, treatment and other environment-related businesses. Tremendous growth and continues to increase its market share in China’s water and environmental sector.108 water treatment and supply projects and 4 waste incineration projects across 18 municipalities and provinces in China, two-pronged strategy of focusing on organic growth and acquisition-driven expansion
2) explore new markets such as industrial wastewater, treatment, seawater desalination, sludge treatment and handling, soil treatment, renewable energy, water technology and pollution control, thereby strengthening its top-tier position in China’s water and environmental industry.
3) Related Companies - Shanghai Industrial Holdings Ltd. acquired a controlling stake and completed debt restructuring in Asia Water. It was renamed SIIC Environment.
acquisition of 60% of the issued and paid-up share capital of Ranhill Water (Hong Kong) Ltd (“Ranhill Water”). Ranhill Water is a wholly-owned subsidiary of Malaysian utility conglomerate Ranhill Holdings Berhad and provides waste water treatment services mainly to industrial parks in China on concession contract basis
acquired additional 32.7% of the equity interest in Longjiang Environmental Protection Group Co., Ltd. (“Longjiang Group”).
equity interest of 58% in Longjiang Group, for which Longjiang Group becomes a subsidiary of the Company. Longjiang Group holds more than 40 water treatment, water supply and sludge treatment projects in China, with a total water treatment and supply design capacity of 3.59 million tons/day. This acquisition is one of the landmark transactions in China’s water sector and is of strategic importance to the Group in the northeast region.
4) double-digit financial growth in FY2016 with total revenue recording a 46.8% year-on-year increase to RMB2.65 billion and net profit attributable to shareholders surging 26.2% to RMB454.93 million.
5) Chinese government remains steadfast in its commitment to environmental conservation and pollution reduction, and new policies and trends bode well for the Group’s overall operations and performance.
December 2016, the Chinese government issued a 13th Five-Year plan outlining that China would invest about RMB560 billion in the wastewater treatment facilities and pipelines construction between 2016 and 2020. Its National People’s Congress (“NPC”) Standing Committee also approved China’s first Environmental Protection Tax (“EPT”) Law, which will replace the existing pollutant discharge fee system with a pollution tax as the main economic tool regulating environmental pollution by businesses.
“Notice of Formulation and Adjustment of Sewage Treatment Fee Standards” published in 2015, China’s local governments were tasked to review and revise wastewater treatment fees by the end of 2016. This tariff revision programme has been carried out substantially. The price adjustment varies based on the different cities and locales, but is expected to increase by an average of 17% across the board.
Zhou Jun Executive Chairman, member of the Executive Committee of the 12th Chinese People’s Political Consultative Conference in Shanghai
Yang Chang Min Executive Director 20 years of experience in operation and management of water business.
Li Zheng Fu, Executive Director of Capital Operation Department at China Energy Conservation and Environmental Protection Group (Government body)
Huang HangGuang - General Manager, 20 years of experience in the water treatment industry, Worked in government bodies
HEAVILY INDEBTED, NO GO ESPECIALLY IN FOREIGN MARKETS!!!
To monitor in Watchlist on progress
Porter 5 Forces (Pricing Power)(Franchising)
Threat of New entrants
Bargaining power of suppliers
Bargaining power of Buyer
Threat of substitutes in products and Services
Rivalry among existing competition
Organisational Life Cycle What type of stock it is and what I am looking out for.
Growth rate
Beta
CAPM (required rate of Return)( Rename Beta, Obtain adjusted Beta, Use STI ETF as Rm,
Company Geometric Return
2) Financial Ratio Health Analysis with peers
Profitability
Net profit margin
Operating profit margin
Liquidity/ Leverage
Cash Ratio = (Cash + cash equivalents) / Current liability
Current Ratio = (Current Asset / Current Liability)
Debt ratio = (Total Liability / Total Asset)
Quick Ratio
Operating cash flow
Investing cash flow
Financing cash flow
Performance
Return on Asset
Sales Turnover
Earnings Per Share
Return on Investment
Tax Retention Rate (tax efficiency, higher better) = (EBIT - tax exp) /EBIT
Interest Expense Rate (lower better) = int exp / Totalasset
Return on Equity
Dupont ROE analysis - Profit Margin x Asset Turnover x Financial Leverage
ROE = Net Income/Net Sales x Net Sales/Total Asset x Total Asset x Common Equity
3) Valuation Models
1) DDM = V=D(1+g)/(Re-g)
i) Requires consistent Dividend policy and payout
ii) Gorgon constant Growth model
iii) Good to value mature companies with stable growth, profit, dividend growth
iv) Not good to value companies prone to macroeconomic and cyclical factors, large fluctuation in profits and dividend growth
2) FCFE
Net Profit After tax
- (CAPEX-dep exp)(1-debt ratio)
- (Change in working capital)(1-debt ratio)
= FCFE
i) Estimate of Equity Capital Usage, Determine whether Dividend and stock repurchases is paid via free cash flow or other financing methods. If FCFE > Dividend payment and cost to buy back shares, Company is using debt of existing capital for share buyback, essentially propping up share price.
ii) Good to value growth companies and start-ups with no dividends.
iii) Cannot value companies with drastic change in working capital.
iv) focus on net profit after tax, ignore cash flow issues such as investments in fixed assets, net borrowings and working capital.
3) Price Earnings Ratio = Market P / Earnings per share
i) Must have consistent earnings and growth, take average of 4 quarters
ii) Use to compare companies within same industry, Low P/E undervalued and great performance, High P/e investors expect high earnings growth
iii) Essential to do Dupont analysis, Can be manipulated by increasing leverage
iii) Not good to Value start-ups, loss making, unstable profits or growth focused company.
iv) Not good to value economies with high inflation, insufficient discounting factors time value of money
4) Price per book value = Market P / Book Value
i) Low P / BV = undervalued or fundamental weakness, how much is company worth after liquidating everything
ii) Only use to compare with companies in same industry, with positive book value, short run negative earnings
iii) Not Good for Companies focusing on Branding and Goodwill (BAML), change in accounting methodology, Comparison across countries, Change in technology, change in asset prices (depreciation, amortisation, appreciation), inflation or present market of assets, improved products and services.
iv) Not good for technology companies (No fixed assets) and consistent loss making companies.
5) Price Sales ratio = Market P / Sales per share
i) Less Prone to Accounting manipulations, Low P/S undervalued or not profitable
ii) Only compare between close competitors, when company no P/E ratio or no earnings.
iii) Good to value start-ups, growth companies, unprofitable companies at mature phase
iv) Not good as it ignores expenses and liabilities
Compare with Mkt P on fixed date, Over/Under Valued, Buy / sell
DDM
FCFE
P/E
P/B
P/S
4) Buy / Sell Decision
1) Fundamental Target Price Range
2) Consider Support Resistance Lines
3) Consider Technical Analysis input by POEMS
4)Consider Analyst consensus opinion, Favouring stocks with minimal analyst coverage
5) Buffet Valuation Checklist Business Tenets
1) Is business simple and understandable? (choose companies within your circle of competence, not the size of the circle but rather how defined are its parameters)
2) Does Business have consistent operating history? (Operating performance, Cash Flow especially for SME)
3) Does business have favourable Long term Prospects? (American Steel industries decline, avoid commodities, Porter's 5 forces - choose franchises that products are needed and desired, with no close substitutes, unregulated, quality, weak competitors. branding / quality allowing company to retain market and pricing power to pass on costs to consumers)
Management Tenets
4) Is management rational and track record of competence? (SMRT clowns)
5) Does business have strong track record and consistent good leadership and management (management changes, adopting of technology, recognition of fundamental changes in economy)
6) Does management resist institutional imperative? (Manager Mismanagement and inertia to change)
- The organisation resists any change whatsoever in its current direction, and will seize upon any evidence that they are doing the right thing while fastidiously ignoring evidence to the contrary.
- Just as work expands to fill time, and waistlines expand to fill belts, projects and acquisitions will materialise to soak up all available capital.
- Any business plan of the CEO, however stupid it may be, will receive immediate support from a legion of lackeys who will produce copious data and detailed rate of return and strategic studies to support the boss's thesis.
- The behaviour of peer companies, irrespective of differences in circumstances, whether they are acquiring, expanding, setting dividend policy, downsizing, putting the troops through customer service training or setting executive compensation will be immediately and thoughtlessly copied.
- Poor capital management skills. Buffet buying over entire companies to decide financing policy )
7) What is the ROE? (Revenue, Expenses, Cash Flow, Labour relations, pricing flexibility, capital allocation needs). Look out for cash flow, indebtness and changes in interest rates
8) What is the company's owner earnings?
9) What are the operating margins?
10) Has company created at least 1 dollar of market value for every dollar retained?
Value Tenets
11) What is the value of the company (Intrinsic, Book, Market). Buy a good company at an undervalued Price. Buy a very good company at a fair price as good companies are closely monitored
12) Can it be purchased as significant discount to its value? (undervalued, Very good prospects / projects)
s,
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