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C&G Environmental Protection Holdings Limited

Unlocking Value out of Existing Projects? C&G Environmental Protection Holdings Limited (C&G) recently announced the letter of intent with a potential purchaser that is listed in the People’s Republic of China (PRC) to facilitate the negotiation and finalization of a definitive sale and purchase agreement in respect of a proposed sale of the Group’s waste-to-energy (WTE) business and assets and the principal operating subsidiaries of the company in the PRC to the purchaser. The validity period of the letter of intent is three months and the proposed sale (if any) shall in no event be less than the net asset value of the PRC WTE Business and Assets. Our Take: This proposed sale will help to unlock value out of their fixed assets and allow the company to facilitate its construction of upcoming jobs in Guiyang and Dalian and to take on more projects in the future. The proposed transaction will also signal to the market the valuation of C&G assets. Our speculation is that the company may sell its stabilized assets like the Jinjiang plants which will command a higher premium to NTA and retain new plants to nurture their utilization rates further.

25 Oct 2013

Invest

 Intrinsic Value  Prev Closing

S$0.260 S$0.210

Main Activities C&G specializes in developing, investing, building and managing environmental preservation projects for the treatment of municipal solid waste and sewage.

Financial Highlights (Y/E Dec) HK$m

FY11

FY12

FY13F

Revenue from WTE

166

318

416

Gross Profit

149

167

218

PAT

23

-49.4

18.1

EPS (HK cts)

2.4

-5.1

1.9

Source: Voyage Research Estimates

Key ratios (FY13F) PER

70

P/BV

0.73

ROE

1%

Debt/Equity

141.7%

Current ratio

0.8

Source: Voyage Research Estimates

Indexed Price Chart Green (FSSTI) Black (C&G)

Following the announcement, the company’s share price soared from 11.5 S cents to a 52 week high of 24 S cents, more than our previous intrinsic value of 20 S cents. It is worth noticing that the NTA per share is approximately HK$1.81 (or 28.9 S cents per share) as of end June 2013. For now, we tentatively set the intrinsic value at 0.9X NTA or S$0.260 per share. Recommend Invest. Source: Bloomberg

52wks High-Low Number of Shares Market Capitalization

S$ 0.24/ S$0.08 973 m S$204.3m

Analyst: Ng Kian Teck, Deputy Head of Research [email protected] Tel: 6227 2107

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25 Oct 2013

Figure 1: Financial Forecasts and Estimates HK 'mn Revenue Revenue from WTE Gross Profit Profit After Tax EPS (cents)

2010 1,500 63 129 192 20.9

2011 1,401 166 149 23 2.4

2012 691 318 167 -49.4 -5.08

2013F 616 416 218 18.1 1.9

2014F 751 451 272 44 4.5

2015F 696 696 452 189 19.4

Total Current Assets Total Non-Current Assets Total Current Liabilities Total Non-Current Liabilities Total Equity

1,211 2,452 397 1,571 1,694

967 3,752 853 2,109 1,757

811 3,954 1,093 1,961 1,711

796 4,132 1,058 2,140 1,730

814 4,432 1,138 2,335 1,774

747 5,154 1,194 2,735 1,963

Net Income Before Tax Cash from Operating Activities Cash from Investing Activities Cash from Financing Activities Net Change in Cash Net Cash - Beginning Balance Net Cash - Ending Balance

216 -210 -550 665 -95 555 517

37 -117 -863 423 -558 517 11

-36 -73 -319 375 -17 11 10

21 225 -302 176 100 10 109

52 281 -477 200 4 109 114

231 362 -979 450 -167 114 -54

Trade Receivable Days Accruals and other payable days

117 50

169 124

167 437

150 250

150 250

150 250

13.6% 6.3% 91.8% 3.0 6.03 0.75 0.7%

1.3% 0.5% 122.1% 1.1 55.33 0.72 0.3%

NM NM 132.9% 0.7 NM 0.74 0.0%

1.0% 0.4% 141.7% 0.8 69.97 0.73 0.0%

2.5% 0.8% 149.4% 0.7 28.67 0.71 0.0%

9.6% 3.2% 157.9% 0.6 6.70 0.65 0.0%

ROE ROA Debt/Equity Current Ratio P/E P/B Dividend Yield Source: Voyage Research Estimates

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Update Report

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Increase Exposure – The current price of the stock is significantly lower than the underlying fundamental value. Readers can consider increasing their exposure in their portfolio to a higher level. Invest – The current price of the stock is sufficiently lower than the underlying fundamental value of the firm. Readers can consider adding this stock to their portfolio. Fairly Valued – The current price of the stock is reflective of the underlying fundamental value of the firm. Readers may not need to take actions at current price. Take Profit – The current price of the stock is sufficiently higher than the underlying fundamental value of the firm. Readers can consider rebalancing their portfolio to take advantage of the profits. Reduce Exposure - The current price of the stock is significantly higher than the underlying fundamental value of the firm. Readers can consider reducing their holdings in their portfolio. IMPORTANT DISCLOSURE: As of the date of this report, the analyst and his immediate family may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may be materially interested in any such securities. Portfolio structure should be the responsibility of the investor and they should take into consideration their financial position and risk profile when structuring their portfolio. Investors should seek the assistance of a qualified and licensed financial advisor to help them structure their portfolio. This research report is based on information, which we believe to be reliable. Any opinions expressed reflect our judgment at report date and are subject to change without notice. This research material is for information only. It does not have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive or access this research material. It is not to be construed as an offer, or solicitation of an offer to sell or buy securities referred herein. The use of this material does not absolve you of your responsibility for your own investment decisions. We accept no liability for any direct or indirect loss arising from the use of this research material. We, our associates, directors and/or employees may have an interest in the securities and/or companies mentioned herein. This research material may not be reproduced, distributed or published for any purpose by anyone without our specific prior consent.

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25 Oct 2013