- Stripping out accounting changes and one-offs, underlying business solid in 4QFY6/14. FY6/14 normalised PBT growth in line.
- Change from SFRS to IFRS to hurt short term but benefit longer term.
- Maintain BUY with slightly lower TP of SGD1.14 (30x FY6/15E P/E) from SGD1.23, after EPS adjustments.
A change in accounting rules and one-off items muddled HanKore’s FY6/14 results. Stripping these out, its underlying business remained solid in 4QFY6/14. Full-year revenue grew 63.3% YoY, on higher construction revenue and water-treatment fees. After adjusting for one-offs, including fair-value losses on warrants (CNY34m), its acquisition of Tongyong (CNY85m) and cross-currency swaps (CNY1m), normalised PBT grew 35% YoY. This was in line with our forecast of 37%.
Catalysts intact
We maintain our long-term positive view as we believe HanKore will benefit from China’s water-tariff revisions and industry consolidation. Its merger deal with China Everbright (CEI) is also pending shareholders’ approval in an EGM, likely in November. If materialised, it could be a game-changer. With the backing of CEI, we expect HanKore to acquire more aggressively.
The change in its accounting standard from SFRS to IFRS will hurt its short-term earnings but benefit its longer-term financials, we believe. We lower our FY6/15E/16E net profit by 2.9/8.0% to factor in the accounting changes. This trims our TP to SGD1.14 from SGD1.23, still at 30x FY6/15E P/E, peer valuations.
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