Company Profile
Kaidi Ecological and Environmental Technology is mainly engaged in biomass electric power andthermal electric power generation, water treatment, environmental protection, coal-bed gas andshale gas mining and exploring. The company was founded in 1993 and is headquartered in Hubei,China.
Event
On November 28, Kaidi Ecological and Environmental Technology (the company, Kaidi), announcedthe adjustment on fund-raising plan, stating that it would issue 458 million shares at CNY 9.3 pershare on December 2.
Comments
The completion of private placement helps alleviate financing pressure by raising CNY 4.2 billion.Kaidi announced on November 28 that it has privately offered 458 million shares at CNY 9.3 pershare, raising funds of CNY 4.25 billion (net amount of CNY 4.18 billion), less than the amountanticipated in the preliminary scheme. Therefore, the company adjusted its investment plansaccordingly. Specifically, it pledges to invest CNY 2.44 billion in the fourteen biomass power plant,devote CNY 506 million in the forestry ecological civilization projects, and repay bank loans of CNY1.23 billion. The completion of private placement helps alleviate financing pressure, paving way forthe company’s future development.
China Huadian Capital Holdings increased stake in Kaidi by participating in private placement. Weexpect more strategic cooperation to come underway. By participating in the private placement,China Huadian Capital Holdings increased its stake in Kaidi by 10.2% by buying 20 million shares, thusbecoming the company’s second largest shareholder. As a wholly-owned subsidiary of China HuadianGroup and actually controlled by SASAC, China Huadian Capital Holdings reports operating revenueof CNY 197.6 billion and net profit of CNY 18.9 billion in 2015. As one of the five large-scalestate-owned power generation groups, China Huadian Capital Holdings looks to more proactivelydevelop hydro-electricity, wind electricity and nuclear electricity businesses while stepping up thethermo power business. In the future, China Huadian Capital Holdings, as a strategic investor, isexpected to channel more resources into Kaidi, providing stronger boost for its earnings growth.
It’s worth noting that the completion of the private placement scheme helps optimize Kaidi’s debtstructure and better control its financial expense. In 2015, the company’s earnings fail to registerremarkable increased mainly due to poor financial expense control. In the first three quarters of2016, the financial expense accounts for 22.8% of operating revenue, which to some extent hamperthe company’s growth. After the private placement, Kaidi will no longer concern over short-termliquidity. We expect that over twelve construction projects in progress will complete within one yearthanks to strong financing support. The funds raised will be partially used to repay bank loans, whichwill directly bring down financial expense. The company’s leverage ratio will be reduced to below75%, enabling it to meet the criteria of bond issuance. Kaidi will kick off a corporate bond financingplan, with the aim of raising over CNY 5 CNY 10 billion funds in the long run. The company willgradually replace its high-interest debt with lower-interest debt financing, thus bringing down theoverall financing cost.
Investment Recommendations: Reiterate BUY. We estimate the company’s net profit at CNY 423million in 2016, CNY 655 million in 2017 and CNY 914 million in 2018. After the private placement,the company’s market cap increased to CNY 21.3 billion, implying 50x 16E PE, 33x 17E PE and 23x18E PE. The launch of the private placement greatly alleviates market concern over the company’sfinancial conditions and will greatly improve its financial structure. We expect in 2017 the company’searnings will reaches inflection point. Reiterate BUY rating.
