On October 5, Shanghai Securities Holdings subscribed to exchangeable bonds equivalent to 10% of Yuefeng Environmental Protection's share capital. On October 5, Shanghai Securities Holdings (363 HK), the second largest shareholder of Yuefeng Environmental Protection, announced that it would subscribe for HK$1.64 billion 7-year exchangeable bonds (exchangeable bonds) issued by the largest shareholder, Ms. Lee Wing-yi, and others, with an annual interest rate of 2.8%. During the period, Shanghai Securities Holdings can exchange 240 million shares of Yuefeng Environmental Protection held by Ms. Li and others at HK$6.71 per share (56.0% higher than yesterday's closing price of HK$4.30), which is equivalent to 10.0% of the issued share capital of Yuefeng Environmental Protection. This issue only involved transactions between the two major shareholders; the exchangeable bonds were not issued by Yuefeng Environmental Protection.
If a share exchange is implemented, SSE Holdings will increase its holdings of Yuefeng Environmental Protection shares from 19.5% to 29.5%, while the majority shareholders' holdings (Ms Lee Wing-yee and others) will drop from 54.7% to 44.7%, but will still maintain substantial controlling interest.
Strengthen the project partnership between the company and SSE Holdings
Currently, the company's cooperative projects with SSE Holdings mainly include the Shanghai Baoshan Waste-to-energy Plant, which was put into operation in 2022. The garbage disposal capacity is 3,800 tons/day, and Yuefeng Huan holds 18.0% of the shares. We believe that after this release, the project partnership between the company and SSE Holdings can be strengthened, which is conducive to the promotion of more project cooperation and operational competitiveness in the future.
Boosting market confidence in the short term
The stock price fluctuated quite a bit after the company was transferred out of Hong Kong Stock Connect in early September due to insufficient trading volume. We believe that this issuance shows that SSI Holdings agrees with the company's development and can boost market confidence in the short term.
Reiterate the “increase in holdings” rating
We maintain profit forecasts. Since this offering does not involve changes in the company's total share capital, we maintain a target price of HK$5.10, corresponding to 8.5 times the target price-earnings ratio for 2024 and an increase of 18.6%. Reiterate the “increase in holdings” rating.
Risk warning: (1) project development delays; (2) accounts receivable risk; (3) grid-connected electricity prices have dropped sharply.