Thursday, 17 September 2020

Increasing my Stake in China Everbright Water

Increased my stake in China Everbright Water (CEW)

The decision was due to my thinking that low interest rate environment will be here in the long run. Hence a good industry to invest in would be the utilities companies since they employ a large amount of leverage to own tangible cash generating assets.

Closest Comparable

Was thinking between Sembcorp Industries and China Everbright who are the remaining 2 large utilities companies on SGX. Below were my comparison:

Debt Ratio: Post demerger, Sembcorp Debt ratio stands at 66%, while CEW was at 61%.

Dividend Yields: Sembcorp was paying around  5 cents per share, while CEW was paying 1.3 cents per share. At current share prices, SCI was yielding 3.7%, while CEW was 5.7%.

Payout ratio was about the same after stripping out Sembcorp Marine losses. What this meant was that CEW was a better yielding stock at the same payout ratio. Book value wise CEW was trading at a steeper discount (but i dont really analyse on PB ratios anymore as asset values can be easily written down)

Cashflow yield: SCI cash flow generation ability was much better than CEW based on its cash flow projection. However, it is worth noting that CEW is in the BOT water business and is at a growing stage. As a result, cashflow generation is still weak. SCI on the other hand is in the mature stage and has completed power plants.

CEW Industry and Potential Growth

Industry wise, while SCI is diversified across power, water and waste management. CEW is a pure water play (the only one in Singapore). This makes it slightly difficult to compare but SCI was the closest apple to compare it against. In addition, CEW is in an expansion stage and is doing water treatment in China. This is a growing market as China needs a higher clean water treatment capacity to meet up with the growing urbanization of its population. This bodes well for CEW's future growth and revenue increase through water tariffs.

Final thoughts: Given the strong yield CEW has, I had bought more to make it one of my core positions.


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