Key points of investment

Core view: Qiangtai Environmental's main business is urban and industrial sewage treatment. It operates 3 sewage treatment projects in Jiangsu Province, China, with a design treatment capacity of 8,3500 tons/day, all of which are BOT models. The sewage treatment business operates steadily, has good cash flow, and is resistant to inflation. Continued growth will be achieved through higher water prices and increased treatment volume in the future. The company is planning to acquire a palm kernel oil press in Indonesia to develop biomass power generation business through the plant's own power plant. Indonesia is extremely rich in biomass resources, the utilization rate is low, and there is plenty of room for development. If the business progresses smoothly, it is expected to open up new growth points for the company.

Investment advice: The company's static PE in 2015 was 10.2 times, and the planned share allocation price of HK$0.5 was 12.36% premium over the current price, with a certain margin of safety. The company's current sewage treatment business is stable and resistant to risks, and the planned development prospects of biomass power generation business in Indonesia are good and attractive. Investors are advised to keep an eye on its subsequent developments.

Risk warning: The acquisition failed to be approved by the Securities Regulatory Commission, the progress of Indonesia's biomass power generation business fell short of expectations, and the renminbi and Indonesian rupiah depreciated against the Hong Kong dollar.