Money Talk: HanKore, Yangzijiang, China Merchants Holding Pacific

HanKore Environment Tech Group's wastewater treatment operations at the Jiangsu Jiangdu Development Zone plant. -- PHOTO: HANKORE ENVIRONMENT TECH GROUP
HanKore Environment Tech Group's wastewater treatment operations at the Jiangsu Jiangdu Development Zone plant. -- PHOTO: HANKORE ENVIRONMENT TECH GROUP

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. HanKore Environment

Broker: OSK-DMG

HanKore will buy China Everbright's pool of 25 wastewater treatment and reusable projects of 1.892m tonnes/day design capacity for 5.8 billion yuan, or $1.2 billion.

The successful merger removes deal overhang and gives the combined entity gearing headroom to pursue growth via mergers and acquisitions.

We value HanKore at 36 times FY2016 price/earnings, higher than its state-backed peers' average 30 times, as its low gearing of 9 per cent post-consolidation places it in a prime position to acquire earnings-accretive wastewater treatment assets for longer-term growth.

Maintain Buy, with $0.15 target price.

2. Yangzijiang Shipbuilding

Broker: OCBC

Following Chinese news reports that Yangzijiang Shipbuilding's chairman, Mr Ren Yuanlin, has been accused of illegal activities by Tianjin Guoheng Railway Holding (Tianjin), Yangzijiang's share price fell 10.6 per cent last Friday but subsequently rose 3.0 per cent to close at $1.04 on Monday after Mr Ren dismissed the allegations.

Given the limited information on hand and the possibility that Tianjin may or may not come up with proof substantiating its claims, it is not up to us to ascertain the veracity of the allegations.

However, this development means that a protracted battle may weigh on the sentiment of the stock. More importantly, this development only goes to show the difficulty in controlling companies that may land on Yangzijiang's plate in the future by virtue of its financing business.

We lower our fair value estimate on the stock from $1.26 to $1.04. Downgrade to Hold.

3. China Merchants Holdings Pacific

Broker: CIMB

We expect China Merchants Holdings Pacific;s (CMH) strategic expansion to be firmly supported by its very cheap financing and the strong nationwide footprint of its parent, China Merchants Group (CMG).

The company pays the highest dividend among its peers while having significant scope to further ramp up its investment returns. The toll road operator's recent success in exiting a nonperforming property development business has refreshed its outlook.

While we expect strong expansion ahead through acquisitions, our current target price is conservatively based on the organic growth of its toll income.

We initiate coverage with an Add rating and a target price of $1.06.