Regional Industry Focus

Water Sector

DBS Group Research . Equity 10 November 2009

Tap on to stronger growth STI : 2,629.35

• The future of water is upbeat; expect continuous
contract flow plus tariff adjustments, particularly in
HSI : 21,479.10
China SET: 681.91
• Players are stronger than ever with easing credit and
strengthened balance sheets; many are ready to gear
up again for growth
• We prefer China Everbright International, Beijing
Enterprises Water, Epure and Hyflux for low debt STOCK COVERAGE
ratio, large exposure to China and increasing Bloomberg Price Mkt Cap Target Price
exposure to BOT projects Code LCY US$m LCY Rating

Multi-pronged drivers in sight. As the push for government Beijing Ent Water 371 HK HK$2.07 926 HK$2.47 BUY
spending on water infrastructure and services accelerates, get China Everbright 257 HK HK$3.46 1,621 HK$4.26 BUY
ready for an expected flood of contracts, positive reforms and Intl
tariff hikes. Particularly in China - where tariffs have risen as Tianjin Cap. 1065 HK HK$2.28 98 HK$2.86 BUY
much as 20% in the last six months - we can expect the Environ*
announcement of steeper targets and bigger investments for Asia Environment AENV SP S$0.295 90.5 S$0.47 BUY
the upcoming 12th Five Year Plan (due in 2011) to create
Epure International EPUR SP S$0.565 522 S$0.71 BUY
more opportunities for the water companies and drive up Ltd
sentiment for the sector.
Hyflux HYF SP S$3.03 1,144 S$3.50 BUY
And with stronger funding, players are much better
positioned. After several fund raising activities, balance Hyflux Water Trust HYFT SP S$0.665 143 S$0.65 HOLD
sheets of HK companies have strengthened, with net debt-to- Thai Tap Water TTW TB Bt4.20 502 Bt5.93 BUY
equity ratios easing to a healthier 30-50% range. Moreover,
Source: DBS Vickers
thanks to looser credit in China, water companies have more
access to bank lending now. Among SGX-listed companies, * H-share market cap
several are ready to raise capital through divesting completed
projects into business trusts. Hence, with their funding all lined Note: Prices used as of 5 November 2009
up, water counters are well positioned to capitalize on this
bigger wave of expansion for the industry.
Go for more exposure to China and recurrent BOT
income, to beat near term challenges. Near term, we see
global earnings risks from rising building material costs (steel,
cement etc) and interest rate hikes. However, we believe BOT
operators and/or those with bigger exposure in China (where
government is still actively driving infrastructure development)
are less susceptible to these risks. We prefer China Everbright
International, Beijing Enterprises Water, Epure and Hyflux.

“In Singapore, this research report or research analyses may only be distributed toInstitutional Investors,
Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.”
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: MY / LM / sa: DC / JC
Regional Industry Focus
Water Sector

Patricia Yeung +(852) 2863 8908

Table of Contents
patricia_yeung@hk.dbsvickers.com
Investment Summary 3
Ai Teng Tan +65 6398 7967
AiTeng@dbsvickers.com Sector Performance 4
Valuation 5
Vichitr Kuladejkhuna, CFA +66 0 26577826
vichitrk@th.dbsvickers.com What to pick 6

Global water stocks valuation 9

Suvro Sarkar +65 6398 7973 Where do the differences lie? 10
suvro@dbsvickers.com
Fundamental performance 14

Who has the resources for growth? 16

“Recipients of this report, received from DBS Vickers Research
(Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 Opportunity for growth 22
6398 7954 in respect of any matters arising from or in
connection with this report.” Going global 27

MENA is flushed with opportunities 27

India is another hot-spot but slow 32

Regional water stocks: PE and PB

Performance 36
Water indicators for China 40

Stock profiles 41

Beijing Enterprises Water 42

China Everbright Int’l 44

China Water Affairs 46

Tianjin Capital 48

Asia Environment 50

Epure International 52

Hyflux 54

Hyflux Water 56
Thai Tap Water 58

Disclaimer 62

MICA (P) 043/10/2009

Page 2

Investment Summary
Regulatory push will drive demand in China. When it
comes to the shortage of water resources, there is no doubt
that China is at the top of the global list. Thus, it is no surprise
that the Chinese government has increasingly acknowledged
such threats and launched increasing investments in supportive
policies. We expect the announcement of steeper
environmental targets and bigger investments in the water
sector when the 12th 5-year plan (2011-2015) is announced
next year.
We prefer companies with exposure in water sewage
operation because of the lower operational risk. We believe
the Chinese Government will push towards achieving over
70% urban sewage treatment levels from the current expected
level of 67% in the 12th 5-year plan. In fact, the number of
water sewage plants is expected to double by 2010 with
annual processing capacity reaching over 34bn tons. We
believe the annual capacity will further increase to 42bn tons
by 2013. Assuming construction cost of RMB1,000-2,000 per
ton of capacity, market for the construction of new water
sewage plants in the next five years, which both Hong Kong
and Singapore listed water companies could tap into, could
amount to RMB10-21tr or RMB2.0-4.2tr per year.
Tariff hikes across China are turning more projects
commercially viable. According to data from China Water
Net, average water tariff and wastewater tariff in 35 major
cities in China have been increasing at CAGR of 7.14% and
13.91% respectively. In 1H2009, 19 out of 36 major cities
were in the process of water tariff hike application, an increase
of more than 20%. There will be more public hearings in other
cities for tariff hikes. Such uptrend is expected to continue as
the Government seeks to change the market landscape and
better incentivize the private sector to invest in water projects.
Middle East and North Africa (“MENA”) region is flushed
with opportunities. Besides capitalizing on the robust water
infrastructure demand in the PRC, water companies in
Singapore and China are increasingly venturing overseas in
recent years, with notable success. Many of the countries in
the MENA region are oil-rich and per capita income is high. As
a result, many MENA countries have some of the highest
consumption rates per capita in the world whereas availability
is extremely scarce. Thus, the opportunities are enormous. The
total value of water and wastewater projects planned for the
Middle East and North Africa (MENA) region over the next
decade tops US$120 billion.
Regional Industry Focus
Water Sector
India is another hot spot. India is fast approaching water
stress levels. No city in India has full-day water supply. But the
Government is now waking up and has set aside a huge outlay
for water supply and wastewater treatment through various
channels. In coastal areas, the drinking water scarcity is even
higher and this creates an opportunity that water players here
can tap on to. It is estimated that INR 390b of desalination
investments will be required to meet the four-fold surge in
coastal water needs by 2026. Two desalination projects have
already been awarded to international consortia and the
planning and tendering process for a few more are underway.
Players now have the financial flexibility to go for more.
The credit crisis had proved to be a temporary spanner in the
works for the water players, delaying expansion plans. But
now, with their funding all lined up, water counters are well
positioned to capitalize on this bigger wave of expansion for
the industry. After several fund raising activities, balance sheets
of HK companies have strengthened, with net debt-to-equity
ratios easing to a healthier 30-50% range. Moreover, thanks to
looser credit in China, water companies have more access to
bank lending now.
Among SGX-listed companies, several are ready to raise
capital through divesting completed projects into
business trusts. In Singapore, most EPC companies, which
have undertaken BOT contracts in the past two years, are close
to completing construction for most of the projects won. Apart
from Hyflux, which can continue to pump its completed assets
into Hyflux Water Trust, Epure and Asia Environment are
expected to have a comparable portfolio (in terms of water
capacity processed) to Hyflux Water Trust when the latter listed
on SGX with an initial portfolio of water assets with total
design capacity of 445,000 cu m/day.
In conclusion, we remain positive on the sector although
intermittent correction is possible and investors should take
advantage of pullback to gain entry into the sector. Specifically,
we prefer companies with low net debt-equity ratio (which
implies more funding flexibility) and higher exposure to the
China market (to minimize the risk of a weak USD and higher
commodity prices). We also favour those with bigger portion of
sales coming from BOT projects to those that are more EPC
centric because the latter would be subject to higher margin
pressure under an inflationary environment.
Our top picks in Hong Kong are China Everbright International
and Beijing Enterprises Water. In Singapore, we like Epure
International and Hyflux.
Page 3
Regional Industry Focus
Water Sector

Water outperformed substantially
After some apprehension in the first two months, Singapore,
Hong Kong and Thailand markets enjoyed a sharp rally with
year-to-date gain of 49.3%, 49.3% and 51.5% respectively.
With abundant market liquidity, as well as strong support from
Chinese government for the domestic economy, Singapore and
Hong Kong water stocks were re-rated with ytd performance
of 95.9% and 73.8% respectively. In particular, Hong Kong
water stocks showed strong resilience at the beginning of the
year. On average, water stocks have outperformed the broad
market by 23-45%.
Amongst bigger Singapore water stocks, Hyflux (HYF SP)
gained 71% ytd while Epure (EPUR SP) surged 111% on the
back of resilient earnings supported by record orderbooks and
more importantly, announcements of significant contract wins
in new markets overseas. Hyflux landed close to US$1b worth
of contracts in Libya while Epure clinched its first non-China
contract worth US$82m.
For Hong Kong water stocks, the overall performance was
distorted by Guangdong Investment (270 HK) and Tianjin
Capital (1065 HK). The former counter (ytd performance:
34.9%) was penalized for its defensive nature of raw water
supply business while the latter (40.2%) underperformed due
to its inferior fundamentals. Stripping out these two counters,
Hong Kong water stocks had in fact outperformed HSI and its
Singapore counterparts by over 140% and 100% respectively.
Beijing Enterprises Water (371 HK) (BEW) topped the ytd
performance list at over 230% due to its aggressive expansion
plan.
The defensive nature of Thai Tap Water (TTW TB) did not fit in
investors’ strong appetite for risk, and share price was basically
flat ytd, compared with 51.5% of SET.

Water stocks performance YTD vs HSI, STI and SET

Jan 09 = 100
240
220
200
180
160
140
120
100
80
60
Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09

S'pore water sector HK water sector Thai Tap Water

HSI STI SET

Source: Bloomberg

Page 4
 Regional Industry Focus
Water Sector

Relative performance – Singapore stocks Relative performance – Hong Kong stocks

Jan 09 = 100 Jan 09 = 100

360 360

310 310
260
260
210
210
160
160
110
110 60
60 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09
Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 China Water Affairs
Tianjin Capital
Asia Envir Hyflux
China Everbright Int'l
Hyflux Water Trust Epure Int'l Beijing Ent Water

Source: Bloomberg Source: Bloomberg

HK stocks PE trend Singapore stocks PE trend

(x ) (x )
1 2 0 .0 0 1 2 0 .0 0
1 0 0 .0 0 1 0 0 .0 0
8 0 .0 0 8 0 .0 0
6 0 .0 0 6 0 .0 0
4 0 .0 0 4 0 .0 0
2 0 .0 0 2 0 .0 0
0 .0 0
0 .0 0
Jan-09
Jan-00

Jul-01

Jan-03

Jul-04

Jan-06

Jul-07

Apr-08
Apr-02

Apr-05

Oct-09
Oct-00

Oct-03

Oct-06

Jan-00

Jan-03

Jan-06

Jan-09
Jul-01

Jul-04

Jul-07
Apr-02

Apr-05

Apr-08
Oct-00

Oct-03

Oct-06

Oct-09
T ia n jin C a p B e ijin g E n t W a te r H y flu x W a te r E p u re
C h in a E v e rb rig h t C h in a W a te r H y flu x W a te r T ru st A sia E n v iro n m e n t

Source: DBS Vickers, Bloomberg Source: DBS Vickers, Bloomberg

Valuation Meanwhile, the Singapore water sector is trading at average PE

of 16x FY09F and 14x FY10F on projected EPS growth of
As a result of the re-rating, Hong Kong water sector is trading 151% and 18% for FY09 and FY10 respectively. The sector
at 16.5x FY10 PE, which is at a discount to the counterparts in average is skewed by United Envirotech (UENV SP), which is
China. The sector average is distorted by China Everbright running ahead of an expected threefold jump in FY10
International (257 HK) (CEI) and BEW, which due to their earnings. If excluding this outlier, sector average would be 14x
higher growth profile, are trading at slightly above mid-cycle FY09 and 12x FY10. Among mid caps, Epure offers better
valuation. In fact, they are also trading at premium to most of value at 13x FY09 and 11x FY10 for 17% growth for the next
its counterparts in Singapore, Europe and the US. However, we two years with upsides likely from acquisition from water
believe such premium is justified for their robust EPS growth of assets. Within the small caps, Asia Environment (AENV SP) is
29-71% for FY10. Else, other water stocks in the HK universe undemanding at c.9x FY09 and c.7x FY10 for EPS growth of
are still languishing at low-teens FY10 PE. 20%.

Page 5
Regional Industry Focus
Water Sector

What to pick? China steel prices forecasts

Going forward, we believe the water sector would be re-rated RMB/ton

positively and continuously on rising awareness in 6,500
environmental protection. Investors can expect a continuous 6,000
flow of announcements on contract wins given the plentiful
5,500
business opportunities in both China and overseas markets. In
5,000
China especially, the government is ardently pushing water
reforms, which not only create more opportunities for water 4,500

companies, the bigger enticement is the increase in water 4,000

tariffs across China, which would make water investment a 3,500
more profitable proposition for investors in the water industry. 3,000
2,500
That said, however, a rising tide does not necessarily lift all
2,000
boats. To be a winner, water companies must not only have
2004 2005 2006 2007 2008 2009F 2010F
access to adequate funding, it is also important to be in the
right market segment to seize opportunities. Or, to steer clear Wire Rod Medium Plate HR Coil
from one that is plagued with near term challenges.
Source: China Steel Association, DBS Vickers
Some of the possible risks facing water companies in the
foreseeable future include:
China cement prices forecasts

Escalating raw material prices: affects EPC more than

BOT but less of a concern in China. Cement and steel are Rmb / Ton
600
key materials for the construction of water infrastructures. A
550
sharp appreciation in the cost of these materials would have a
500
more adverse impact on EPC operators than BOT companies
450
because higher material costs could 1) lower margins of
400
projects since operators in a bid to stay competitive is unlikely
350
to pass on the full price increase to customers for new
300
contracts; and even risk cost overrun if material/construction
250
requirement of existing projects have not already been
200
matched with third party supplier; and 2) substantial rise in
2004

2005

2006

2007

2008

2009F

2010F

building costs could potentially push back infrastructure

development/upgrade by private or even public sectors,
resulting in shrinking contract flows for EPC companies.
While the general trend for commodity prices globally are
upward bias, DBS economist expects price hike in China for
cement and steel to be much less than anticipated due to
excess capacity.
Shanghai Wuhan Chengdu
Chongqing Nanchang
Source: CEIC, DBS Vickers
Couple this with China’s determined focus on infrastructure
development fully backed by its stimulus plan and monies, we
believe China is a unique market that is relatively inelastic to
higher material costs than most other markets. This is
evidenced by the rising capital investment in railway and roads.
For environmental sector, investment in anti-pollution projects
and urban environmental infrastructure remained on the
uptrend in the past two years despite the skyrocketing
commodities prices.

Page 6

China capital investment
RMB bn
750
650
550
450
350
250
150
50
-50
2001 2002 2003 2004 2005 2006 2007 2008
Roadway
Railway
Anti-pollution project
Urban environmental Infrastructure
Source: Ministry of Railway, Roadway and Waterway Transportation,
Ministry of Communications, CEIC
Interest rate hike is bad news for capital-intensive BOT
but the likelihood of rate hike is low in China. Some part
of the global economies (Australia, Israel, Norway) have started
to raise interest rates in their process of policy normalization
but DBS economist believes the central bank of China will not
rush to tighten monetary policy next year, at least not before
the Fed. For now, our economist believes Fed hike is unlikely
to happen before 2H10. Even if the PBOC raise domestic rates,
we think the magnitude/pace will be mild/gradual (27bps hike
on the lending rate in 2Q10, followed by another two hikes of
27bps in 3Q10 and 4Q10). Unlike the US, China’s current
lending rate and savings rate after the rate cut last year are far
above zero. They need not hike too much from the current
level.
If the possibility of a significant rate hike is low in China, we
see little earnings risks for water companies in that market. As
for Hyflux, we believe the MENA projects are less susceptible to
rate hikes because rates are fixed over fifteen years. In
particular, the USD loan for Magtaa in Algeria is fixed at a
preferential rate of only 3.75% for 15 years at the time of
contract agreement.
Hence, although interest rate hikes are happening around the
world, the impact on the water companies may be limited for
those in China and those with their rates fixed.
The depreciation of US Dollar: hardly a threat to the
Chinese market. US dollar is currently depreciating against all
major currencies and the trend looks to be continuing. While
Regional Industry Focus
Water Sector
the Chinese market is rather immune to falling USD since
purchases and sales are mostly equal-hedged, this is certainly
negative for overseas contracts, which are typically USD-
denominated. Worse is if contracts were signed six months ago
when USD was 9% higher than now. Except for Hyflux, which
has 64% of sales coming from the MENA region and Thai Tap
Water solely from Thailand, all other companies derived bulk of
their revenue and income from China.
USD has been weakening against SGD since Mar 09 but
holding up well against CNY
1.6 7.1
1.5
SGD
CNY
6.8
1.4
1.3 6.5
Oct-08 Feb-09 Jun-09 Oct-09
SGD CNY
Source: Bloomberg
In conclusion, we remain positive on the sector although
intermittent correction is possible and investors should take
advantage of pullback to gain entry into the sector. Specifically,
we prefer companies with low net debt-equity ratio (which
implies maximum debt headroom and funding for the
respective companies to capitalize growth opportunities) and
higher exposure to the China market (to minimize the adverse
impact from depreciation of US dollar and possible risk of
slower order flow as a result of high commodity prices). We
also favour those with bigger portion of sales coming from
BOT projects to those that are more EPC centric because the
latter would be subject to higher margin pressure under an
inflationary environment.
In Hong Kong, we like China Everbright International, for its
low net debt-equity ratio, large exposure in China and strong
execution on plant construction to minimize cost pressure from
inflation. Although it only focuses in Shandong and Jiangsu
provinces, this strategy helps it establish a solid business
relationship with the local government, which will bode well
for its development into alternative energy. We believe further
announcements on contract wins in alternative energy, as well
as water section, will be good catalyst for the stock.
Page 7
Regional Industry Focus
Water Sector

We also like Beijing Enterprises Water, which mainly focuses in

the China market with relatively low net debt-equity ratio
(assuming full conversion of CB), due to its spectacular growth
potential of 50-70% in FY10 and FY11. We also expect more
positive news flow on acquisition or new contracts as share
price catalysts. After the recent strong rally, the stock may be
subject to short term profit taking which offers good
opportunities for investors to reload the stock.

Epure is our pick in Singapore, considering its impeccable track

record in China and growing BOT portfolio from next year
onwards. With impressive cash holding of RMB700-800m,
Epure is well-positioned to seize good BOT or TOT
opportunities to generate stable, long term returns. For now,
the company still has RMB1.4b of order backlog to afford
visibility until FY11. Valuation wise, the company is among the
cheapest in the region at 11x FY10. We see earnings upside
from stronger than expected equipment sales and contract
wins.

As for Hyflux, we like the company’s strong global franchise

and its fast rising position in membrane-based desalination
market worldwide. For now, Hyflux’s existing contracts are
protected from 1) higher commodity costs as construction have
been outsourced with third party contracts back-to-back and 2)
rising interest costs are hedged by fixed preferential interest
rates. However, at this juncture, Hyflux’s earnings could be a
little pressured by the depreciating USD.

Page 8
 Regional Industry Focus
Water Sector

Global water stocks valuation

09F 10F 08-10
Mkt PE PE EPS EPS EPS Yield Yield P/Bk P/Bk ROE ROE
Currency Price Cap Fiscal 09F 10F gth gth CAGR 09F 10F 09F 10F 09F 10F
Company Name Code Local$ US$m Yr x x % % % % % x x % %
Hong Kong
China Water Affairs^ 855 HK HKD 2.32 397 Mar-09 17.8 10.1 38.4 76.9 56.5 0.3 n.a. 1.3 1.2 6.5 9.3
Tianjin Capital*+ 1065 HK HKD 2.28 98 Dec-08 9.7 8.7 27.2 11.9 19.3 1.4 1.5 0.9 0.8 9.1 9.5
China Everbright Int'l* 257 HK HKD 3.46 1,621 Dec-08 28.5 22.0 12.5 29.2 20.6 0.5 0.7 2.7 2.4 10.7 11.7
Beijing Ent Water*@ 371 HK HKD 2.07 926 Dec-08 58.9 32.7 (8.0) 80.1 28.8 0.2 0.4 3.9 3.4 5.9 12.7
NWS Holdings# 659 HK HKD 14.72 3,910 Jun-09 12.5 12.6 (4.1) (1.2) (2.6) 4.2 4.0 1.2 1.2 12.6 9.2
Guangdong Inv 270 HK HKD 4.16 3,315 Dec-08 12.4 11.2 9.7 11.0 10.4 2.8 3.2 1.5 1.4 12.6 12.8
Average 23.3 16.2 12.6 34.7 22.2 1.6 1.9 1.9 1.7 9.6 10.8

China
Shanghai Chengtou 600649 CH CNY 13.09 4,407 Dec-08 35.4 27.3 (33.1) 29.7 (6.8) 0.5 0.6 2.7 2.4 9.8 11.2
Beijing Capital Co 600008 CH CNY 6.56 2,114 Dec-08 44.9 39.0 23.1 15.1 19.0 1.3 1.7 2.3 2.2 5.9 6.2
Jiangxi Hongcheng 600461 CH CNY 10.49 215 Dec-08 50.0 36.2 42.1 38.1 40.1 n.a. n.a. n.a. n.a. n.a. n.a.
Wuhan Sanzhen 600168 CH CNY 6.95 449 Dec-08 69.5 38.6 (23.1) 80.0 17.7 n.a. n.a. n.a. n.a. n.a. n.a.
Average 49.9 35.3 2.3 40.7 17.5 0.9 1.1 2.5 2.3 7.8 8.7

Singapore
Hyflux Ltd* HYF SP SGD 3.03 1,144 Dec-08 24.1 21.0 14.5 14.6 14.6 1.1 1.1 4.7 4.0 21.0 20.6
Epure Int'l* EPUR SP SGD 0.565 522 Dec-08 13.2 11.3 16.8 16.7 16.7 1.5 1.8 2.3 2.0 19.0 19.0
Sinomem Tech SINO SP SGD 0.47 173 Dec-08 9.6 7.7 677.8 24.5 211.2 n.a. 2.1 0.9 0.8 9.6 12.3
Asia Environment* AENV SP SGD 0.295 91 Dec-08 8.7 7.0 20.4 24.2 22.3 0.0 0.0 0.7 0.6 8.5 9.6
United Envirotech^ UENV SP SGD 0.30 94 Mar-09 25.0 23.1 25.0 8.3 16.4 1.0 1.0 n.a. n.a. 5.5 5.7
Average 16.1 14.0 150.9 17.7 56.2 0.9 1.2 2.2 1.9 12.7 13.4

Region
Thai Tap Water* TTW TB THB 4.20 502 Dec-08 11.0 8.9 3.8 23.7 13.4 5.4 6.7 1.8 1.7 17.5 19.7
YTL Power Int'l# YTLP MK MYR 2.15 3,775 Jun-09 13.5 12.6 40.1 7.5 22.7 5.9 6.1 2.0 1.9 16.7 17.5
Puncak Niaga PNH MK MYR 3.16 382 Dec-08 8.5 7.5 604.0 12.9 182.0 3.5 3.8 n.a. n.a. 11.8 12.7
Thermax Ltd^ TMX IN INR 541.40 1,378 Mar-09 24.8 19.9 (10.1) 24.8 5.9 1.2 1.4 5.5 4.5 24.0 25.0
Manila Water Co Inc MWC PM PHP 16.00 680 Dec-08 12.1 11.1 17.3 8.5 12.8 2.5 2.7 1.9 1.7 17.4 16.3
Average 14.0 12.0 131.0 15.5 47.4 3.7 4.1 2.8 2.4 17.5 18.2

Europe
Pennon Group^ PNN LN GBp 451.30 2,641 Mar-09 12.8 13.5 34.4 (5.3) 12.8 4.9 5.1 2.5 2.4 19.8 17.5
Veolia Environnement VIE FP EUR 22.50 16,507 Dec-08 19.2 15.7 31.5 22.5 26.9 5.4 5.5 1.4 1.4 8.6 9.6
Severn Trent^ SVT LN GBp 959.00 3,772 Mar-09 9.4 11.8 (512.9) (19.8) n.a. 7.3 7.0 2.3 2.2 23.7 18.2
Average 13.8 13.7 (149.0) (0.9) 19.9 5.9 5.9 2.1 2.0 17.4 15.1

US
Millipore Corp MIL US USD 68.75 3,819 Dec-08 17.4 15.6 49.4 11.9 29.3 0.0 0.0 2.5 2.1 13.6 14.1
Nalco Holding Co NLC US USD 22.26 3,076 Dec-08 25.0 18.0 (136.5) 39.2 n.a. 0.6 0.7 5.9 6.6 24.1 27.1
Aqua America Inc WTR US USD 16.24 2,213 Dec-08 20.3 18.1 9.5 12.5 11.0 3.4 3.6 2.0 1.9 10.1 11.1
California Water Servic CWT US USD 36.62 760 Dec-08 18.2 17.4 5.8 5.0 5.4 3.2 3.3 1.8 1.7 10.1 10.1
American States Water AWR US USD 34.46 638 Dec-08 19.4 16.8 39.7 15.4 27.0 2.9 3.0 1.7 1.7 9.7 9.9
Average 20.1 17.2 (6.4) 16.8 18.2 2.0 2.1 2.8 2.8 13.5 14.4

^ FY08: FY3/09, FY09: FY3/10, FY10: FY3/11

# FY08: FY6/09, FY09: FY6/10, FY10: FY6/11
@ Fully diluted EPS
+ H-share market cap only
Source: Bloomberg, *DBS Vickers

Page 9
Regional Industry Focus
Water Sector

Where do the differences lie?
HK largely treats sewage; SG treats, recycles and
desalinates. With the exception of China Water Affairs, most
Hong Kong listed water companies mainly focus on water
sewage projects. SGX listed water companies, however, have a
broader scope in developing alternative water sources, for
instance, seawater desalination and recycled water.
HK: State-owned-enterprises (SOE) with superior China
presence and focus on municipal BOT/TOT. Most Hong
Kong water companies only focus in the China market and
engage mainly in BOT/TOT (transfer-operate-transfer) projects
with a concession period of 20-30 years. This business model is
mostly convenient to local governments as the financing
burden is shifted to service operators. However, operation
during the concession period will provide stable cashflows.
Another fundamental difference is the background of the
major shareholder. Although having a SOE as the parent does
not imply a guarantee in winning bids, it certainly allows most
Hong Kong water companies to have the upper hand in
negotiation and enjoy preferential treatment from local
governments. This is particularly important during challenging
times. This particular difference has also led to various
approaches in getting financing which will be further discussed
in Resources for Growth Section.
SG: Private companies expanding overseas and migrating
from EPC to BOT/TOT; also undertaking O&M ( operation
& maintenance) services. SGX listed water companies, on
the other hand, have exposure in both China and overseas,
especially the MENA region. Most were providing turnkey EPC
for both municipal and industrial clients, but earnings streams
have proven to be very lumpy due to the uneven recognition of
contracts. To smoothen their earnings stream, EPC players
now desire the recurring revenue and cashflow of BOT/TOT
assets. Hence, many have started to invest in BOT projects
where they can also earn the EPC revenue upfront. Some have
also undertaken brownfield or TOT projects to jumpstart the
restructuring of their earnings base.
and waste water services at a private industrial estate, marking
its first foray into the private water and wastewater treatment
businesses.
All are expanding, horizontally &/or vertically vs
geographically. While each Hong Kong water company has a
different development strategy, generally speaking, they are
expanding either horizontally or vertically. For example, BEW is
looking for opportunities in recycled water and water supply
while Tianjin Capital and China Water Affairs (855 HK) (CWA)
are growing their core water businesses to become a larger
water sewage operator and water supply operator respectively.
SGX water companies, on the other hand, are actively moving
along the supply chain from EPC to BOT to providing third
party O&M services. Value chain wise, most have taken a
further step to recycle after treating the wastewater. Hyflux,
which is more advanced in their ultrafiltration membrane, has
also undertaken significant membrane-based seawater
desalination projects, to play in a niche area where returns are
better as higher technological barriers lessen the competitive
pressure.
However, development prospects for Thai Tap Water are
muted at the moment. It has made a breakthrough in private
and wastewater treatment business but the chances of getting
another project are low. The government’s lack of focus has
also slowed down the development of sewage treatment
operation for residential areas. Thai Tap Water has intentions
to expand abroad, but this plan is still in its infancy stage and
target markets are unclear. For now, it mainly relies on stable
organic growth. The government’s policy to replace
groundwater with tap water should support healthy tap water
demand growth within existing service areas.

Thai: Municipal water supply, expanding into private

sector. Thailand’s private tap water business is similar to
China’s, in which a state agency, the Provincial Waterworks
Authority (PWA), hands out 20-30 years concessions to private
suppliers for certain service areas in order to reduce its
financing burden. Thai Tap Water is very focused in water
supply within its service areas, which has the PWA as its only
customer. Apart from its existing two concessions, Thai Tap
Water recently acquired the rights to operate treated water

Page 10
 Regional Industry Focus

Regional Industry Focus Water Sector

Water Sector

Regional water companies: snapshot of business model, capacity and growth strategies

Beijing Enterprises China Everbright Tianjin Capital China Water Hyflux Epure Asia Environment Hyflux Water Thai Tap Water
Water Int'l Affairs Trust
Stock code 371 HK 257 HK 1065 HK 855 HK HYF SP EPUR SP AENV SP HYFT SP TTW BK
Recommendation Buy Buy Buy NR Buy Buy Buy Hold Buy

Positioning in the water supply chain

Water supply/ distribution BOT/TOT - BOT/TOT BOT/TOT -
Water treatment BOT/TOT - BOT/TOT BOT/TOT EPC, BOT EPC, BOT EPC, BOT Owner of BOO, BOT,
concession rights Operating right
Wastewater treatment BOT/TOT BOT/TOT BOT/TOT BOT/TOT EPC, BOT EPC, BOT EPC, BOT Owner of Operating right
concession rights
Water recycling BOT/TOT - BOT/TOT - EPC, BOT EPC, BOT - Owner of -
concession rights
Desalination - - - - EPC, BOT - - - -

Capacity in operation
Water sewage (m ton/day) 1.24 1.36 3.26 0.20 - - 0.425 0.036
Water supply (m ton/day) 0.15 - 0.24 3.30 - - 0.753
Recycled water (m ton/day) - - 0.17 - - -
Raw water (m ton/day) - - - 0.40
Waste-to-energy (ton/day) - 3,300 - - - -
Methane-to-energy (Mwh) - 24,960 - - - -
Solid waste treatment (cub.m) - 600,000 - - - -

Capacity under construction

Water sewage (m ton/day) 1.38 0.29 0.19 - 0.405 0.615 0.12
Recycled water (m ton/day) 0.41 0.01 - - - -
Waste-to-energy (ton/day) - 4,200 - - - -

Vol of processed waste water (m

ton)
FY08 * 114.3 363.9 688.0 259.7
FY09F 343.7 349.3 805.3 -
FY10F 636.4 486.1 886.1 -

Page 11
Regional Industry Focus
Regional Industry Focus
Water Sector
Water Sector

Regional water companies: snapshot of business model, capacity and growth strategies
Beijing Enterprises China Everbright Tianjin Capital China Water Hyflux Epure Asia Environment Hyflux Water Thai Tap Water
Water Int'l Affairs Trust
Competitive edges SOE background SOE background SOE background Strong presence Strong franchise Ranked No.2 2nd tier private First pure play Thailand's largest
with good with good with good in water supply globally; amongst independent engineering water trust private tap water
relationship with relationship with relationship with market top ten water engineering company; owned regionally to ride producer;
government government government independent company in large scale on growth of operating in high
desalination Northeastern projects in water demand growth
plants provider by China Nantong & infrastructure areas
capacity Nanjing. development

Good brandname Good brandname Strong presence Strong ability in Strong Strong presence Strong presence Strong backing of Long-term water
with experienced with experienced in Tianjin turning around relationships with in Northern in Suzhou sponsor Hyflux, purchase
management management loss making water MENA authorities China; based in which owned agreements with
plants and multi-lateral Beijing 31.5% stake in automatic annual
agencies (JBIC), HWT; also has tariff adjustment
access to Hyflux's linked to CPI.
assets in India and
MENA in addition
to China

Development strategy stable recurrent stable recurrent stable recurrent strong cashflow Will continue to Developing Developing Driven by water Expand capacity
cashflow from cashflow from cashflow from from water supply monetize water recurrent O&M recurrent O&M tariff adjustments; to meet demand
BOT/TOT projects BOT/TOT projects BOT/TOT projects projects assets via revenue streams revenue streams increased growth within
divestment to the from completing from completing utilisation and existing service
Trust or third BOT/TOT projects BOT/TOT projects upgrading/ areas.
party buyers. expansion of
Main objective is capacity out of
to recycle capital existing water
for other growth plants
opportunities
nationwide focus on mainly strong base in nationalwide Actively expand Maintain focus in Considering water Leverage on its Seeking
coverage Shandong and Tianjin and try to coverage current presence gaining more trust to unlock rights of first offer acquisition
Jiangsu provinces diversify into in MENA; also BOTs in China; capital for further and refusal opportunity.
other provinces developing continue to EPC growth (ROFOAR) to
opportunities in develop overseas acquire Hyflux's
India and Western market after plants
Europe securing one
contract in Saudi
Arabia

Page 12
 Regional Industry Focus
Regional Industry Focus
Water Sector
Water Sector

Regional water companies: snapshot of business model, capacity and growth strategies
Beijing Enterprises China Everbright Tianjin Capital China Water Hyflux Epure Asia Environment Hyflux Water Trust Thai Tap Water
Water Int'l Affairs
focus on relatively focus on larger focus on water focus mainly in Leverage on Considering water Long term: to
small scale water scale plants in related business water supply existing JV trust to unlock enter wastewater
related business in major cities and projects partnerships for capital for further treatment market
2nd / 3rd tier cities win more new business EPC growth when opportunity
contracts in opportunities; seek arises.
subsequent new JV
upgrades or partnerships to
extensions reduce capital
outlay for huge
BOT & TOT
projects

partner with a comprehensive shifting towards raise funds Will continue to Long term:
parent to provide service provider in management through monetize water consider
bundling services environmental services or divestment of both assets via investment in
protection entrusted projects water and non divestment to the water-related
which is less water related Trust or third party projects abroad.
capital intensive assets buyers. Main
objective is to
recycle capital for
other growth
opportunities

apart from bidding Developing

new BOT/TOT recurrent O&M
projects, capacity revenue streams
growth will be by providing
driven by asset operation and
injection and management
acquisitions services to Trust

* Only 5 months
contribution for BEW,
estimation for CWA

Page 13
Regional Industry Focus
Water Sector

Fundamental performance Net profit CAGR (2008-2011)

Th ai Tap W ater
Beijing Enterprises Water has the strongest net profit
CAGR. CEI earns the most amongst our water stock universe. C h in a W ater A ffairs*^
However, about 50% of net profit comes from waste-to- Tian jin C ap ital
energy projects. In terms of net profit CAGR, BEW has the B eijin g En t W ater
strongest growth rate, due to its small comparison base,
C h in a Ev erb rig h t In t'l
aggressive expansion plan and strong balance sheet. While
Asia En v iro n m en t
CWA also has a robust growth rate of close to 50%, we
believe most of the growth comes from rebound in value in its Hy flu x W ater Tru st
financial assets on the rally of the stock market. Thai Tap Water Ep u re
also has a steady growth, which is mainly driven by single digit Hy flu x
volume growth and tariff adjustment (which is correlated to
CPI), and falling interest expenses. In Singapore, earnings bases 0 50 100 150
%
of Hyflux and Epure are sizeable but growth is less explosive
than their HK peers partly because of limited finance resources.
*Bloomberg estimates
However, Hyflux could grow faster if it can continually ^FY08:FY3/09; FY09:FY3/10; FY10:FY3/11; FY11:FY3/12
monetize its water assets to free up capital for more growth
locally or overseas. As for Epure, the plan is to grow a bigger Source: Companies, DBS Vickers
base of recurring income with BOT/TOT expansion, before
divesting these assets eventually to third party or a trust.

Net profit trend Highest operating margin from Thai Tap Water. In terms
of operating margin, Thai Tap Water outperforms its
US$m
120 counterparts due to its stable and mature operations. Most
100 Hong Kong-listed water companies’ have wide fluctuations in
80 margins due to distortion from construction of new projects,
60 which command lower margins. For projects that are in
40 operation, we estimate operating margins of Hong Kong and
20
Singapore water companies to be above 40% at steady stage.
0
As such, we expect Epure and Asia Environment to see
China Water
Capital

Thai Tap
Tianjin
Epure

Hyflux Water

Everbright

Beijing Ent
Hyflux

Environment

Water
Affairs*^
Water
China

improving margins going forward as their BOT earnings base

Int'l
Trust

Asia

expand.

2008 2009 2010 2011

*Bloomberg estimates
^FY08:FY3/09; FY09:FY3/10; FY10:FY3/11; FY11:FY3/12

Source: Companies, DBS Vickers

Page 14
 Regional Industry Focus
Water Sector

Operating margin mature, the stronger operating cashflows would be able to

%
finance further expansion internally. Thai Tap Water and Tianjin
70 Capital are good examples of companies with steady cashflows
60
50
with limited capex for development.
40
30 Free cashflow
20
10 US$m
0 200

China Water
Capital

Thai Tap
Epure

Everbright
Hyflux Water

Tianjin
Beijing Ent
Environment
Hyflux

Water
Affairs*^
100
Water
China

n.a.
Int'l
Trust

Asia

0
(100)
(200)
(300)
2008 2009 2010 2011
(400)
(500)
*Bloomberg estimates

China Water

Thai Tap
Capital
Epure

Tianjin
Hyflux Water

Everbright

Beijing Ent
Hyflux

Environment

Water
Affairs*^
Water
China
^FY08:FY3/09; FY09:FY3/10; FY10:FY3/11; FY11:FY3/12

Int'l
Trust

Asia
Source: Companies, DBS Vickers
2008 2009 2010 2011

EPC models are less of a strain on cashflows but negative

*Bloomberg estimates
free cashflow of BOT models will turn positive over time. ^FY08:FY3/09; FY09:FY3/10; FY10:FY3/11; FY11:FY3/12
It is apparent from the cashflow comparison chart that
cashflow generation of EPC players (i.e. Singapore) are Source: Companies, DBS Vickers
generally more positive than their HK counterparts that have a
longer track record in operating the capital intensive BOT/TOT
business models. In particular, the negative free cashflows at
CEI and BEW, are the result of aggressive expansion plans. As
the number of operating projects grows and as the plants

Page 15
Regional Industry Focus
Water Sector

Who has the resources for growth ?
Financial flows are crucial as it is impossible for
companies to invest in BOT perpetually. Business model of
water companies is characterized by high capital expenditure
especially now that the Build Operate Transfer (BOT) or even
Transfer Operate Transfer (TOT) models of Public-Private
Partnerships is gaining increased acceptance in infrastructure
projects. In the case of BOT and TOT projects, operating
cashflow is steady but payback period is very long. As such,
private companies need to finance their projects upfront but
could only reap returns over a long term concession period
(usually 25-30 years), before the asset is handed back to the
government. For companies who used to specialize in only the
EPC portion of the work (i.e. the “Building” in BOT), and have
previously only executed 3rd party EPC contracts profitably for
municipal governments, this wholly owned BOT model brings
in the added challenge of financing the entire project, in
contrast to simple working capital requirements for a pure EPC
player. Hence, with this change in market paradigm, private
companies now have to explore funding avenues to constantly
create capital for new projects so as to generate and ensure
continued growth.
Funding sources are debt, equity and asset sale. So far,
loosened the credit markets and launched the stimulus
package.
Multilateral and development funding agencies are also
supportive of financing water infrastructures. Some of the
more active multilateral funding agencies in this region are the
ADB (Asian Development Bank), World Bank’s IFC
(International Finance Corporation) and JBIC (Japan Bank of
International Cooperation). In addition to fulfilling their
development objectives, these financiers have appetite for
longer-term infrastructure asset class. CEI has recently secured
a ten-year long term loan of US$200m from ADB for the
development of its new waste-to-energy projects.
The debt-equity ratio is a key metric to assess financing
ability with debt. Due to the high capital-intensive nature,
water companies have high debt level with high gearing ratio,
as shown in the following table.
Net debt to equity ratio measures debt headroom
x
2.5
2.0
1.5
1.0

financing for the water companies include raising funds from 0.5
n.a.
the capital market (equity or bond), bank lending and through 0.0

China Water
Capital

Thai Tap
Epure

Tianjin
Hyflux Water

Beijing Ent
Everbright
Hyflux

Environment

Water
divestitures of completed projects to third party or a water

Affairs*^
Water#
China

Int'l
Trust

Asia

trust, a new phenomena pioneered by Hyflux that has proven

to be a feasible source of funding amidst tight credit markets.
2008 2009 2010 2011
(1) Debt financing
Commercial bank lending is a dominant source of debt # assume full conversion of CB
*Bloomberg estimates
financing. Bank lending could be in the form of project ^FY08:FY3/09; FY09:FY3/10; FY10:FY3/11; FY11:FY3/12
financing from finance institutions or convertible loans from
sovereign funds. For project financing, bankers can only offer Source: Companies, DBS Vickers
70-80% of financing at maximum for water projects. In
determining what percentage of financing to offer, various
Our comparison indicates that the Singapore water sector (with
factors will be considered, for instance, cashflow, profitability
an average debt-equity ratio of about 50%) compares quite
and shareholders’ background. In some cases where the
favourably with peers in the region and in the US and Europe,
projects are of inferior quality, only 50-60% of financing will
which are more than 100% geared. We believe companies like
be offered. Hong Kong and Singapore listed companies usually
Asia Environment and Epure, with debt-equity ratios under
are able to get 60-70% of financing for their projects,
50%, have ample debt headroom to take on more debt to
indicating the above average quality of their projects. During
finance their future projects. Singapore companies in general
the financial crisis when the banking system tightened their
are willing to gear up to net-debt-equity ratio of 100%.
credit, those Hong Kong listed water companies with strong
For Hong Kong-listed companies, we believe an acceptable net
backup from SOE parent were in a better position to secure
debt-equity ratio is 70-80%, given the strong recurring
loans, compared with Singapore listed water companies. The
cashflow from operating water plants. FY09 estimated net
situation improved substantially after the Chinese Government
debt-equity ratio of all Hong Kong-listed companies is well

Page 16
 Regional Industry Focus
Water Sector

below such level. Tianjin Capital used to have the highest debt Envirotech, helping the two companies raised S$30m and
ratio. However, after collecting more water sewage fee with S$16.5m of net proceeds.
substantial improvement in account receivable turnover days,
debt ratio has dropped to around 50%. Given the reasonable Recent equity fund raising exercises
level of debt, we believe Hong Kong water companies have
No. of Placement
ample room for expansion and we have assumed aggressive
Company Date shares (m) price
development plan for these companies. For instance, we Asia Environment April 07 28.0 S$0.51
estimate BEW to achieve 8m tons of daily capacity by FY11, up July 07 30.0 S$0.81
from just 1.5m tons in FY08. CEI is also expected to win more
projects after signing more framework agreements or MOU Beijing Enterprises Water Jan 08 247.0 HK$0.40
with Municipal Government in Zibo or Dezhou in developing Jul 08 786.5 HK$0.69
alternative energy.
China Everbright Int'l April 06 510.0 HK$0.66
Sept 09 480.0 HK$3.03
(2) Equity financing
Equity financing strengthen capital base for growth China Water Affairs Dec 06 167.2 HK$2.73
without incurring debt. The key advantage of share issues or July 09 120.0 HK$1.90
placements enable companies to obtain funds to meet its
Epure July 07 51.4 S$2.18
growth plans while maintaining or reducing debt. Typically,
companies would take advantage of favourable market Hyflux Sept 05 27.0 S$3.45
conditions to launch a share placement to strengthen its
balance sheet and take advantage of organic growth Sinomem Sept 09 50.0 S$0.62
opportunities or simply to prepare for tough times ahead.
United Envirotech Oct 09 40.0 S$0.43
Recapitalizing works best under better market condition Source: Bloomberg, Companies
and higher risk appetite. Considering the significant
rebound in the equities markets, more companies are
capitalizing on current higher risk appetite to raise money via (3) Divestment of assets
placement or rights issue. While debt and equity are two traditional channels for fund
raising, CWA has taken a very different approach from other
In Hong Kong, CEI and CWA recently raised over HK$1.4bn Hong Kong listed water plays in "financing" its business
and HK$200m respectively through share placement. With a developments. As CWA has no government background, it
strengthened share capital base, we estimate CEI’s net debt- seems to be weaker in terms of obtaining financial support
equity ratio to fall from c.70% to below 20% in FY09 and it from banks. As an alternative resource for growth, it has
could be more aggressive in getting new projects. Although grown its balance sheet and asset value through some strategic
our estimated FY09 debt ratio for BEW is not particularly high, investments, which will be divested at the right time to fund its
we expect BEW to issue new shares to its parent for asset expansion. Thus, CWA has investments in non-water
injection, probably in FY10, so as to broaden the capital base businesses, such as hotel, sight-seeing, etc. It also has invested
as well as increase stake in the company. In fact, BEW has a in hydropower operation, Qian Jiang Water Resources (600283
very aggressive expansion plan and we estimate total capex of SS) and China Water Industry Investment Corp. (a strategic
around RMB6-8bn in the coming 2-3 years will push its debt alliance with Ministry of Water Resources), even though CWA
ratio to well above 100% even after placing shares to the does not have operational control. CWA has plans to spin off
parent. We believe the possibility of tapping into the equity its hydropower operation and has already announced the
market again is high. potential spin off of Xinyu Xiannuhu Xincheng Kaifa, which is
principally engaged in tourism, property development and
Over in Singapore, companies under our coverage have not infrastructure construction in Xiannuhu, Xinyu, Jiangxi.
been raising funds through equity since 2007. We certainly
believe there is scope for fund raising should market sentiment
remain positive. Beyond our coverage, investors have recently
participated in share placements of Sinomem and United

Page 17
Regional Industry Focus
Water Sector
(4) Business Trust
Hyflux Water Trust is the pioneer. When it was listed on
the SGX in late 2007, it became the only and first pure play
water trust to be listed in the region. As a business trust, it is
able to benefit from the Singapore Business Trust regulations
and pay out dividends from cash flows rather than profits – in
effect, it is able to distribute cash flows to investors higher than
accounting profits, and therefore act as a high yield instrument
to attract investors. At the time of IPO, the promised dividend
yield for FY08 and FY09 amounted to 5.6% and 6.7%,
respectively, based on the IPO price of S$0.78.
Structuring is important. The Trust is managed by a Trustee-
Manager, which is usually a wholly owned subsidiary of its
Sponsor, but can be a 3rd party manager as well. The Sponsor
will usually retain a significant stake in the Trust (Hyflux owns
31.5% of Hyflux Water Trust) and the rest can be placed out to
institutional as well as retail investors. The Trust owns the
individual assets through a holding company and a series of
special purpose companies (“SPCs”). Dividends are repatriated
up to the Trust level from the SPCs and are then paid out to
unit holders, after accounting for corporate expenses, trustee-
manager fees, interest expenses and capital repayments, if any.
The structure is usually as tax-efficient as possible and seeks to
eliminate any cash traps like withholding tax, dividend caps etc.
Why the Trust as a feasible divestment vehicle should
work.
Low risk, high return. With typical water assets in China and
elsewhere providing asset yields in the low-to-mid teens and
financing costs ranging from 4-8%, the yield to investors can
potentially range from 5-10%. Given that the assets provide
long term contractual cash flows and the counterparties are
usually municipal governments, the dividends should be
relatively secure and are likely to appeal to conservative yield
seeking investors. Further, unlike real estate or shipping, there
is no cyclicality in the industry and asset revaluations are very
unlikely. As for water tariffs, there can be only one way
forward – up – especially in developing countries like China,
where water has traditionally been seen as a “free” asset.
Hence, the cost of raising further equity or debt should be
reasonably low, considering the low risk of default or asset
devaluation.
Bigger investment appetite, higher growth. Secondly,
traditional EPC contractors will be restrained by their asset-light
capital structure in raising sufficient debt proceeds. Higher
debt/ equity ratios will render further leveraging extremely
costly. However, the Trust model allows for higher leverage
Page 18
and lower costs, as the additional debt will be secured against
the Trust’s entire asset base, some of which have been equity-
financed earlier. Moreover – unlike Singapore REITs – the
Business Trust Act does not impose any limit on the amount of
leverage. Aircraft and ship leasing companies have traditionally
been known to adopt highly leveraged structures and hence,
investors will not look at the high leverage with more-than-
deserved scepticism.
Easier negotiations. Thirdly, it allows the Trustee-Manager to
negotiate financing for a bundle of assets rather than the
Sponsor negotiating financing for each individual asset, and
thereby allows for economies of scale and effort.
Investors can choose. Fourthly, it allows two distinct types of
investors to invest in the firm – those with long term horizons
like dividend funds, pension funds and the like can invest in the
Trust while investors focused on growth can participate in the
growth of the Sponsor. The water Trust can actually act as a
hybrid vehicle – providing both yield and growth – as it has
organic growth kickers embedded in its assets: increase in
utilization rates, increase in tariffs, enhancement/ expansion of
facilities in exclusive concession zones.
Growth visibility. Thus, even without acquisitions, the Trust
can grow its distributions. What makes the story more
compelling is the presence of a pipeline of assets – in the form
of a Right of First Offer and Refusal for all assets under
construction by the Sponsor – which provides a very visible
growth timeline for investors.
And why it has not worked as well as we had
anticipated.
Lack of awareness. Water infrastructure assets are a new
asset class, a rarity on exchanges across the world, and may
not be well understood or appreciated by the investment
community in the initial stages as an investment vehicle.
Valuing water infrastructure assets, at this point, may be more
of an art, because there is no historical data or precedent to
fall back upon. Hence, the lack of awareness may lead to
lower IPO valuations and share price volatility may be higher,
despite a business model more stable than the market.
High leverage model perception. Further, the ongoing
credit crisis has rendered high-leverage structures a strict no-no
for the investment community. Hence, even though HWT is
only about 20% geared, its investment premise of growth
through primarily debt-funded acquisitions has come to be
regarded with scepticism.
 Regional Industry Focus
Water Sector

Asset-liability mismatch. The leveraged model can only be of setting up the Trust – as a sustainable divestment vehicle –
successful if the loan tenures are in line with the concession and the Sponsor is thus, more likely to conduct all such deals
agreements. Term loans of tenure of less than 3 years or loans at arms’ length with the Trust. It is, thus, in the mutual benefit
with bullet repayment in the short to medium term may not be of the Sponsor to ensure fairness for the Trust’s minority
the ideal funding solution as it invites investor concern close to shareholders.
refinancing dates and may involve equity raising and dilution.
On the other hand, cost of funding for higher tenures can lead Who is ripe for water trusts? In Singapore, most EPC
to lower project IRRs and discourage the manager from companies which have undertaken BOT contracts in the past
acquiring new projects. two years, are close to completing construction for most of the
projects won. Apart from Hyflux, which can continue to pump
Not really so stable? The economic downturn has also partly its completed assets into Hyflux Water Trust, Epure and Asia
rendered as vulnerable, the notion, that water infrastructure Environment are expected to have a comparable portfolio (in
assets would be non-cyclical in nature. While most residential terms of water capacity processed) to Hyflux Water Trust when
water supply and wastewater plants would indeed be almost the latter listed on SGX with an initial portfolio of water assets
recession-proof, plants meant for treating industrial with total design capacity of 445,000 cu m/day. Beyond our
wastewater or supplying hi-grade recycled water/desalinated coverage, we believe Sinomem and United Envirotech would
water to industries could feel the heat from lower utilization also have sizeable enough capacity for water trusts.
rates as industrial production slows down. Thus, a more
diversified mix of plants or higher exposure to the residential Water portfolio of water companies
sector could be desirable for attracting investors’ interests. Prospective sponsor Value of Capacity of Capacity already Total no. of
portfolio portfolio in operation plants
Conflict of interests. The Trust, being partly owned by the (RMBm) (cu m/day) (cu m/day)
Epure 559 405,000 - 8
Sponsor, also invites the classical “conflict of interests”
Asia Environment 1765 1,040,000 425,000 5
scepticism – wherein investors may perceive it to be a
Sinomem - 565,000 305,000 20
“dumping ground” for the Sponsor’s assets. This implies that United Envirotech 631 505,000 290,000 7
the Sponsor may be selling completed assets to the Trust at
higher valuations than that accorded by the market. However, Source: Bloomberg, Companies
it must be remembered that once such a perception is
established, the Trust will find it very difficult to raise funding
to finance future acquisitions. This defeats the whole purpose

Page 19
Regional Industry Focus
Water Sector

Typical structure expected for a water trust at IPO

Sponsor

Trust

Holding Co.

Note: SPCs refer to “Special Purpose Companies” set up for holding the individual plants
Source: Hyflux Water Trust, adapted from IPO document

Page 20
 Regional Industry Focus
Water Sector

Contractual relationships of a water trust as illustrated by Hyflux Water Trust example

Source: Hyflux Water Trust

Page 21
Regional Industry Focus
Water Sector

Opportunity for growth To achieve such a target, we have assumed a reduction of

15% in water usage per RMB10,000 worth of GDP in 2008
China reigns supreme and 6% per year from 2009 to 2013. Further assuming a real
When it comes to the shortage of water resources, there is no GDP growth of 7.5% in 2009 and 8% in 2010 to 2013, we
doubt that China is at the top of the global list. As mentioned estimate total water usage will reach about 764bn m3 in 2013,
in our earlier environmental protection report (“Building a as shown in the chart above. Despite the fall in water usage
green country”, dated 29 July 2008), water shortage is per GDP level, total usage is expected to rise over 30% from
worsening with rising population, high pollution and wastages 2003 to 2013 in line with robust GDP growth.
due to inefficiencies, which are threatening China’s economic
growth. On a positive note, the Chinese government has Will China have sufficient water resources to fulfil such
increasingly acknowledged such threats and launched demand? Data from China Statistical Yearbook on
increasing investments in supportive policies. We believe these Environment 2008 stated that water resources amounted to
have certainly given rise to many business opportunities to 2,525.5m m3 or 1,916m3 per capital in 2007, down from 2,194
private sectors. m3 in 2000. In fact, China lacks 40bn m3 of water every year,
with almost two thirds of cities suffering from various levels of
While it is difficult to gather complete data on water market, water shortages. In addition, more than 200m of people in
we have attempted to “guesstimate” how much business rural areas are facing shortages in drinking water.
opportunities both Hong Kong and Singapore listed water As part of the efforts in preserving water resources,
companies can ride on. government has spent RMB65.5bn in various projects in 2008
to fortify dangerous reservoirs, upgrade or build supporting
Water usage per RMB10,000 worth of GDP to drop over facilities for large irrigation systems, water diversion projects,
40%. According to statistics provided by the Ministry of Water etc. MWR expects to increase water resources by 79.5bn m3 by
Resources (MWR), water usage in China averaged 465m3 per 2020.
RMB10,000 worth of GDP in 2003, four times the world
average. However, this has dropped to 254m3 in 2007. In fact, Volume of municipal water sewage discharged estimated
the Chinese government has planned to further reduce water to reach over 47bn tons in 2013. Water usage percentages
usage per unit of GDP to just 125m3 in 2020. in industrial and municipal have been increasing from 20.7%
and 10.5% in 2000 to 24.1% and 12.2% in 2007 respectively.
Total water usage With the current rapid industrialization trend to continue in the
3 3
coming five years, we estimate water usage percentage in
m bn m municipal to reach over 13% by 2013, implying a usage
500 900 amount of 102.3bn m3 (up over 50% from 2003).
450 800
400 700
350 600
300
500
250
400
200
150 300
100 200
50 100
0 0
2003
2004
2005
2006
2007
2008E
2009F
2010F
2011F
2012F
2013F

Water usage per RMB 10,000 GDP (LHS)

Total water usage (RHS)

Source: Ministry of Water Resources, DBS Vickers

Page 22
 Regional Industry Focus
Water Sector

Total municipal water usage sewage rate of only about 66% by 2013, assuming full
3
utilization rate.
bn m
120
However, that is certainly not the Chinese government’s
100 intention. In fact, the number of water sewage plants is
expected to double by 2010 with annual processing capacity
80
reaching over 34bn tons. We believe the annual capacity will
60 further increase to 42bn tons by 2013. Assuming construction
cost of RMB1,000-2,000 per ton of capacity, market for the
40 construction of new water sewage plants in the next five years,
20 which both Hong Kong and Singapore listed water companies
could tap into, could amount to RMB10-21tr or RMB2.0-4.2tr
0 per year.
2003

2004

2005

2006

2007

2008E

2009F

2010F

2011F

2012F

2013F

Estimated treated sewage volume and capacity

Source: Ministry of Water Resources, DBS Vickers bn tons

40
35
The rising amount in total municipal water usage will in turn 30
result in increasing volume of municipal water sewage to an 25
estimated 52bn tons in the coming five years. 20
15
Volume of municipal water sewage discharged and
10
treated amount
5
bn tons 0
2003

2004

2005

2006

2007

2008E
60 80%
2009F

2010F

2011F

2012F

2013F
50 70%
60%
40 Treated water Estimated processing capacity
50%
30 40%
30% Source: China Statistical Yearbook on Environment 2008, DBS Vickers
20
20%
10 10%
More extension and upgrade projects. Despite the benefit
0 0%
of economies of scale, the size of each new water sewage
2003

2004
2005

2006

2007

2008E
2009F

2010F

2011F
2012F

2013F

plant will be smaller than before. At the early stage of the

Treated water (LHS) water sewage market, large plant with daily capacity of at least
Untreated water sewage (LHS) 100,000 or 200,000 tons were built, particularly in the first tier
Sewage rate (RHS) cities where population was denser. This was echoed by the
large contract size of early BOT or TOT contracts, such as CEI’s
Source: China Statistical Yearbook on Environment 2008, DBS Vickers Qingdao project (initial daily capacity of 150,000 tons) and
Jinan project (with total daily capacity of 420,000 tons for
plant 1 & 2). However, as the sewage services spread into the
Doubling the number of water sewage plant. According
second and third tier cities with less population, smaller sized
to China Statistical Yearbook on Environment 2007, there were
sewage plants are required. In addition, to allow more
815 wastewater treatment plants for municipal wastewater in
flexibility and operating efficiency, the whole water sewage
2006. This figure is estimated to jump to about 1,400 water
project will usually be completed in phases with smaller
sewage plants with an estimated annual processing capacity of
sewage plants in each phase. For instance, BEW’s Mianyang
31bn tons. Without further additional capacity, the estimated
Phase I plant had daily capacity of 100,000 tons. After this
number of water sewage plants will be sufficient to reach a
plant reached full utilization, Phase II and III with daily capacity
of 50,000 tons each were added subsequently. We also expect

Page 23
Regional Industry Focus
Water Sector
more upgrade projects going forward. In general, treated
sewage water is required to reach grade II standard. As
requirement on water quality increases, we believe the
required standard will be raised to grade I. In fact, we have
already seen CEI being awarded extension or upgrade project
for some of its plants, such as Jinan plants.
Higher water tariff helps evolving water supply market.
Another opportunity along the water value chain is water
supply. Alongside the growing economy, construction of
piping network for water supply has been growing in the past
10 years. During the period, penetration rate improved by
31ppts to over 95% by end of 2008. Total water supply
capacity increased over 28% to 280m m3 since 2000.
Despite such high penetration rate, the issue remains in water
quality. It is estimated that raw water resources in only 50-
70% of cities in China are up to safety standard due to
contamination of raw water resources by pollution. Another
reason is that the piping network is too old without regular
maintenance. The high cost of maintenance has become a
burden to local governments. Coupled with inefficient
management, most water supply companies are loss making.
Though a significant portion of government’s stimulus package
has been allocated for water safety projects, water tariff has
been increasing to encourage more efficient water usage and
allow development of recycled water. According to data from
China Water Net, average water tariff and wastewater tariff in
35 major cities in China have been increasing at CAGR of
7.14% and 13.91% respectively. In 2007, average water tariff
and wastewater tariff were RMB1.63 and RMB0.65 per ton
respectively. The following table has shown some examples of
water tariff hike recently. In 1H2009, 19 out of 36 major cities
were in the process of water tariff hike application, an increase
of more than 20%. There will be more public hearings in other
cities for tariff hikes. Such uptrend is expected to continue as
companies seek to compensate for rising operating costs (such
as investment in piping network, increasing quality tests
required from 36 to 106 items) and reducing government
subsidies in water usage.
Page 24
Recent water tariff hike
City, Provinces New water tariff % of inc rease
(RMB/ton)
Inner Mongolia 1.85 32.1%
Jiangsu 3.10 24.0%
Xianning City, Hubei 1.50 25.0%
Zhuzhou, Hunan 1.59 29.3%
Leshan, Sichuan 1.75 20.7%
Nanc hang, Jiangxi 1.68 21.7%
Lanzhou, Gansu 1.20 33.3%
Source: China Water Net, DBS Vickers
Another possible solution is to commercialize water supply
projects. Many private companies or foreign players had an
early entry into China’s water supply market, but with bad
experiences. For instance, Veolia Water (a world leader in
water services and water treatment in France, and accounted
for less than 1.5% of water supply market in China) started
investing in China since 1980s. On expectation of rising water
tariffs, Veolia bid aggressively with low price or heavy
investment to win projects. For example, Veolia invested
RMB1.7bn for 45% stake in Lanzhou Water Group.
Unfortunately, tariff increase was not fast enough to make
those projects profitable.
The market landscape has changed in recent years alongside
the more frequent and higher degree of water tariff hikes. As
more water supply projects are commercially viable with higher
tariffs, we have seen more listed companies diversifying into
water supply projects. According to unofficial statistics, about
41m m3 of water supply (or around 16% of total water supply
market) is from non state-owned water companies. Thus, the
potential market is significant should the government privatize
all its water supply operators for over 80% of the water supply
market. This implies a turnover of at least RMB133bn, which
will increase further with water tariff hikes.
Drought issue encourages alternatives to fresh water. In
late 2008, China had its worst drought in 50 years, which
caused millions of people in the northern part of China a
shortage of drinking water. This has raised the Chinese
government’s attention to accelerate the development of
alternative water supply such as recycled and desalinated
water. The table below shows the amount of urban
wastewater discharge from the most drought prone areas of
northern and north-eastern part of China. These areas include
Beijing, Tianjin, Shaanxi, Guizhou, Sichuan, Chongqing, Henan,
Shandong, Anhui, Jilin, Liaoning, Shanxi and Hebei.
 Regional Industry Focus
Water Sector

Urban waste water discharged in northern and north- Prefer water sewage operation. Amongst the various
eastern part of China business opportunities in China, we prefer companies with
3
exposure in water sewage operation, despite the stronger
m m
60
cashflow for water supply business.
50
While water tariff hike is an important step in encouraging
40
more efficient use of water and developing alternatives to fresh
30 water (such as recycled water and desalination), there is strong
20 resistance from the general public, questioning the rationale of
10 such move. Although water tariff in China is still well below
0 the international average, the large increase and the lack of
transparency in the pricing structure will be unacceptable by
2006

2007

2008E

2009F

2010F

2011F

2012F

2013F

the general public, especially in the less affluent regions.

N & N E c h in a O th e r a re a s
Furthermore, water safety and quality are the key concerns in
Source: China Statistical Yearbook 2008, DBS Vickers various parts of the supply chain. The existing old and leaking
piping network of water supply operation could result in large
investments required to upgrade or replace the old network.
The recycle rate of wastewater is estimated to be only 6-8%
This is also a big administration nightmare. These are some of
for the whole country. But this rate is much higher in the
the potential risks in water supply operation.
northern part of China. For example, Nanjing’s recycle rate was
over 60% in 2007. In 2008, Beijing’s recycled water amounted
Water sewage business, on the other hand, is less risky.
to about 600m with a recycled rate of over 50%. Recycled
Treatment tariff is decided through negotiations with the local
water will increase to 900m m3 in three years. We estimate the
government. In many cases, tariff adjustment terms are
recycle rate to be around 15% in northern China in 2007 but
included in the contracts. In addition, profitability of water
will increase to about 25% in 2013, doubling the total volume
sewage operation which is protected by minimum guarantee
of recycled water. Assuming tariff for recycled water of RMB2-
and construction of sewage plants by phases also help to
3 per ton, the market size could be RMB10-15bn by 2013.
optimize its utilization rate.
Note that operating cost for recycle water plant is estimated at
RMB1.7-1.8 per ton, which is higher than the recycle water
tariff of RMB1-1.2 per ton. Hence, subsidy from government is
required though this amount will decline as water tariff is
increased. Take Beijing as an example. RMB420 – 480m of
subsidy was provided in 2008. Thus, only affluent provinces or
municipals will be able to provide such large amount of
subsidy. Hence, this may constrain the development of recycle
water market.

While desalinated water is more acceptable as drinking water

by the general public, the key obstacle is its high operating cost
(estimated RMB6-7 per ton). The daily capacity of desalinated
water was estimated at only 100,000 tons in 2007.
Nevertheless, this is a possible solution to water shortage for
drought areas. According to National Development and Reform
Commission, desalinated water is expected to contribute 16-
24% of water supply in coastal areas by 2010 with daily
capacity of 0.8-1m tons. This amount will then increase to 2.5-
3m tons in 2020, providing 26-37% of water supply in coastal
areas.

Page 25
Regional Industry Focus
Water Sector

Water value chain

Rivers/Lakes/Reservoirs Sea

Raw Water Plant Desalination Plant

Raw Water
Desalinated Water
Treated Water

Water Purification Plant

New capacity of 1.7-2m
tons in the coming 10 years
Tap Water

Residential/Industrial Usage
Waste Recycled
Discharge volume
Water of 47bn tons in Water
2013

Water Sewage Plant Recycled

water
Construction revenue volume of
of RMB11-22tr in the over 5bn tons
next five years in 2013

Recycle Plant

Source: DBS Vickers

Page 26

Going global
More are developing new markets abroad. Besides
capitalizing on the robust water infrastructure demand in
the PRC, water companies in Singapore and China have also
ventured overseas in the past years, with a couple of them
successfully breaking into the global water market with
landmark contracts. Among them, Singapore-based Hyflux
made waves in the North African coastline with significant
contract wins for some of the world’s largest membrane-
based desalination plants in Algeria and Libya. Beijing-based
Epure has also signed a letter of intent in July this year with
Marafiq, the government-linked utilities arm in Saudi Arabia,
to undertake a RMB562m expansion of the Jubail sanitary
wastewater treatment plant.
Overseas ventures add new revenue sources, growth
markets and diversification. Having successfully fought
off competition from bigger global players is not only a
considerable vote of confidence for these smaller players vis-
à-vis big MNCs, such overseas expansions also offer
diversification, which are very important for private
companies that are less privileged against state companies
in terms of funding and contract distributions in the home
market. Moreover, overseas contracts typically are larger in
value and scale compared to projects in their domestic
markets. Of course, it remains to be seen if these new
entrants into the global market can overcome the
challenges to execute and manage the projects well outside
of China. As of now, Hyflux is close to completing its first
desalination plant in Tlemcen, Algeria after one and half
years of financial close.
Some of the non-PRC markets brimming with water
opportunities are water stressed regions like the MENA and
India.
Regional Industry Focus
Water Sector
MENA is flushed with opportunities
Where freshwater is scarce… According to independent
market journal Arab Water World, MENA has 5% of the
world population with less than 1% of the available world's
freshwater resources. Today, average per capita water
availability in the region is about 1,200 cu. m per year while
the world’s average is close to 7,000. The annual water
availability in the region ranges from a high of about 1,800
cu. m per person in Iran to less than 200 cu. m per person in
Jordan, West Bank/Gaza, and Yemen. By 2025, the regional
average water availability is projected to be just over 500 cu.
m/person/year.
but consumption is not… Many of the countries in the
region are oil-rich and per capita income is high. As a result,
many MENA countries have some of the highest
consumption rates per capita in the world. Consumption per
person in the United Arab Emirates (UAE), for example, is
among the highest in the world, standing at around 570
litres per person a day, more than three times the world’s
average.
Thus, the opportunities are enormous. The total value of
water and wastewater projects planned for the Middle East
and North Africa (MENA) region over the next decade tops
US$120 billion.
Page 27
Regional Industry Focus
Water Sector

MENA is the new oyster for Asian’s water companies

Source: Company

Desalination is well entrenched in the Gulf countries.
The Gulf Cooperation Council countries are facing an
increase in the demand for water, mostly from municipal
and industrial users. Their main challenge is to reduce
dependence on groundwater, which they are seeking to do
by constructing new desalination capacities and developing
wastewater reuse projects. Countries like Saudi Arabia, UAE,
Kuwait and Oman actively look to combine desalination
projects with power plants to allow for energy efficiency.
70% of UAE’s current daily water supply comes from
desalination plants.
North Africa is now joining the bandwagon. North
African countries will need to develop new sources of supply
to meet a projected 50% increase in the demand for water
by 2015. Tenders for running water networks in large cities
in Algeria have been issued since 2006. Elsewhere, there are
plans to build nearly 1 million m3/d of desalination capacity
to supplement Libya’s Great Manmade River (GMR) supplies
and privatization of water and wastewater services in
Morocco as well as improving desalination and wastewater
coverage in Tunisia.
Algeria has been the first to move in North Africa. Algeria
faces problem of acute water shortage and pollution. The small
amount of water available in Algeria is threatened by regular
droughts and this is further complicated by lack of sewage control
and pollutants from the oil industry, as well as other industrial
effluents. The Mediterranean Sea has also been contaminated by
the oil industry, fertilizer runoff and soil erosion. According to the
World Health Organization, Algeria is “water stressed” at below
an annual availability of 1,700 cubic meters of clean water per
person. Without immediate change, Algeria is predicted to drop
to levels of less than 1,000 cubic meters by 2025. Thus, the
government is focusing on infrastructure development by
promoting foreign companies to set up desalination plants in
Algeria, of which Hyflux has been a direct beneficiary.
Neighbouring to Algeria, we see great potential from Libya,
Tunisia, Morroco and Tunisia.

Page 28
 Regional Industry Focus
Water Sector

Opportunities galore in MENA

Country Desalination Plant Name Plant Status

3
Algeria Ain Salah 100,000m /d BWRO Tender expected before Q42009
3
Algeria Bejaia 100,000m /d BWRO Early feasibility stage
3
Algeria El Oued 300,000m /d BWRO Tender launched
3
Algeria Jijel 100,000m /d BWRO Early feasibility stage
3
Bahrain Ad Dur 3 Approx 227,000m /d and 1200MW Expected 2015/2016
3
Bahrain Bahrain Petroenergy Complex 136,500m /d (30MIGD) Progress expected late 2009 or 2010
(BEPCO)
MSF/MED & 100 MW
3
Cyprus Ha Potami 3,290m /d approx. Developers to submit planning application
3
Cyprus Kumkoy, Northern Cyprus 23,000m /d Bids expected mid-2009
3
Cyprus Vasilikos Power Station 20,000m /d mobile SWRO and 50,000m3/d Award to IDE in dispute
fixed SWRO
Egypt Abu Qir power plant Desalination capacity for a 1300MW power Bids submitted
plant
3
Egypt Hurghada 25,000m /d Advisory team to be finalized in 2010
3
Egypt New Cairo 125,000m /d Bids submitted
3
Egypt North Sinai 35,000m /d Advisory team to be finalized in 2010
3
Egypt Red Sea desalination plants Up to 100,000m /d over the next five years Under consideration
3
Egypt West gulf of Suez 70,000m /d SWRO Advisory team to be finalized in 2010
3
Iran Asalouyeh Power Station 1684,325m /d Consultancy tender issued
3
Iran Kish 10,000m /d SWRO Aqualyng looking for financial partner
Ireland Dublin Region Conceptual phase
3
Kuwait Az-Zour North Total 1.25m /d and 4700 MW Bids for advisory work under evaluation
3
Kuwait Az-Zour North 2,3 and 4 Total 805,000m /d Tender for No.2 may be issued by end of 2009
3
Kuwait Doha West 109,100m /d Cancelled tender to be reissued
3
Libya Benghazi North 250,000-300,000m /d MED/ MSF Under planning
3
Libya Benghazi South 250,000m /d Feasibility stage
3
Libya Gulf SP 10,000m /d MED Understood to be under bidding
3
Libya Homs extension 30,000m /d Planning stage
Libya Jabal Capacity unknown RFP issued
3
Libya Misurata 5,000m /d MED Three bids submitted
3
Libya Misurata 100,000m /d initially, MED Packages under tender
Libya Misurata, Ras Elmoungar and Tobruk Tender ongoing
Libya Sahl Capacity unknown Bids were due in May
3
Libya Tobruk Cogen 100,000m /d MED & 500 MW minimum Bidders have submitted offers on the
restructured package
3 3
Libya Tripoli Cogen 400,000m /d to 500,000m /d Planning stage
3 3
Libya Tripoli and Benghazi 500,000m /d to 400,000m /d MOUs signed with Hyflux and others
3
Morocco Al Hoceima 17,500m /d Conceptual phase
3
Morocco Agadir 100,500m /d SWRO PwC awarded advisory contract
3
Morocco Nador 43,000m /d Conceptual stage
3 3
Morocco Sidi Ifni and Dakhla 5,200m /d and 4,300m /d Conceptual stage
3
Morocco Safi 68,000m /d SWRO Conceptual stage
3
Morocco Tan Tan 8,600m /d Tender delayed till end 2009

Page 29
Regional Industry Focus
Water Sector

Opportunities galore in MENA

Country Desalination Plant Name Plant Status
3
Oman Al Gubrah Expansion by 136,000m /d of existing Main RFP expected early 2010
facility
3
Oman Containerised RO plant 22,700m /d (5MIGD) RFP expected soon
3
Oman Salalah 68,200m /d (15 MIGD) & 400 MW Sembcorp is preferred bidder
3
Oman Sohar Industrial Port Approx 5,000m /d SOQs expected during July
3
Oman The Wave, Muscat Total capacity of 6,000-7,000m /d Tender expected soon
3
Qatar Abu Samra 2,000m /d Tender issued
3
Saudi Arabia Al Khafji 5,680m /d MED EPC tender expected in 2010
3
Saudi Arabia Al Khafji phase 3 30,000m /d MED Re-tender likely during 2009
Saudi Arabia Al Khobar 2 expansion Bids were due in August
3
Saudi Arabia Al-Waji 4 11,000-13,500m /d MED Re-tender likely during 2009
3
Saudi Arabia Duba 9,000m /d MED Re-tender likely during 2009
3
Saudi Arabia Haql 9,000m /d MED Re-tender likely during 2009
Saudi Arabia Jazan Economic City IWPP with 4000 to 5000 MW of power to Under planning
be built in phases
3
Saudi Arabia Jubail RO 75,000m /d SWRO Project expected to be re tendered
3
Saudi Arabia Khobar 4 IWPP 250,000m /d & 250MW Future plant planned over the next 5-7 years
3
Saudi Arabia King Abdullah Economic City 70,000m /d SWRO Decision on project's future due in 2010
3
Saudi Arabia Ras Azzour 1,000,000m /d & 1,000 MW SWCC evaluating re tendering options
3
Saudi Arabia Ras Azzour Ma'aden Aluminium Approx 13,700m /d and 1477MW Re tendering ongoing
3
Saudi Arabia Ras Tanura Approx 15,000m /d and 1000MW RFP expected in 2009
3
Saudi Arabia Shoaiba 4 IWPP 650,000m /d & 665MW Future plant planned over the next 5-7 years
3
Saudi Arabia Shuqaiq 3 IWPP 175,000m /d & 175MW Future plant planned over the next 5-7 years
3
Saudi Arabia Yanbu 6,000m /d EPC bids under review
3
Saudi Arabia Yanbu (Marafiq) 1,700MW and 550,000m /d (121 MIGD) Combined with Yanbu 3 as EPC
Saudi Arabia Yanbu (Marafiq) 2 700MW, desalination capacity Tender to be launched by early 2010
undetermined
3
Saudi Arabia Yanbu 3 1,700mMW and 550,000 /d (121 MIGD) Combined with Yanbu (Marafiq) as EPC
3
Tunisia Phase 1 Southern Tunisia brackish 36,200m /d BWRO across ten sites Pre-tender stage
water plant
3
Tunisia Phase 2 Southern Tunisia brackish 32,500m /d BWRO across eight sites Pre-tender stage
water plant
3
Tunisia Sfax Three 50,000m /d SWRO units First tender is expected in 2011
3
Tunisia Zaarat 50,000m /d SWRO Preliminary studies underway
3
UAE Abu Dhabi Port Authority 113,700m /d (25 MIGD) & 1,000MW by Consultants sought for feasibility study
3
2011 and 295,000m /d (65 MIGD) & 3,400
MW by 2028
UAE Abu Dhabi, Desert Islands Unknown Mott MacDonald is advising the TDIC
3
UAE Al Zawrah, Ajman 2 45,000m /d (10MIGD) SWRO Part of FEWA's long-term program
3
UAE Dubal SWRO 22,700m /d (5 MIGD) SWRO On hold until mid-2009
3
UAE Desalination refurbishment at E 114,000m /d MSF Bids under review
station phase 1, Jebel Ali
3
UAE Fujairah 1 SWRO expansion Expansion of existing 170,000m /d SWRO New advisory tenders expected late 2009
3
by 136,000m /d
3
UAE Hamriyah IV MED 182,000m /d (40MIGD) MED Bids are being evaluated
3
UAE Hamriyah IV SWRO 364,000m /d (80MIGD) SWRO Bids are being evaluated
3
UAE Hassyan 2 455,000-545,000m /d & 1500MW Expected after Hassyan 1 completion
3
UAE Jafza 100,000m /d SWRO Bids are being evaluated
3
UAE Layyah expansion 22,730m /d (5MIGD) SWRO SEWA reviewing additional capacity
3
UAE Masdar 10,00-12,0000m /d BWRO Preliminary stage
3
UAE Mina Rashihd At least 100,000m /d across two RO plants To be split into three phases
3
UAE Palm Jebel Ali/ Madinat Al Arab 2 x 75,000m /d SWRO Three bidders short listed
UAE RAK Petroleum Under planning

Page 30
 Regional Industry Focus
Water Sector

Opportunities galore in MENA

Country Desalination Plant Name Plant Status
3
UAE RAK Ceramics 15,000m /d (3.3 MIGD) SWRO Most likely site at Al Hamra
3
UAE Ras Al Khaimah 90,000m /d (20MIGD) SWRO Part of FEWA's long-term program
3
UAE Saadiyat Island 10,000m /d SWRO Bids due imminently
3
UAE Takreer 33,600m /d (7.4 MIGD) MSF Feasibility study ongoing
3
UAE Umm Al Nar 123,000m /d (27 MIGD) SWRO Expected to move forward soon
3
UAE N Station 182,000m /d (40 MIGD) SWRO Planning stage
3
UAE Shuweihat 3 454,600m /d & 1500 MW Long-term possibility for ADWEA
3
UAE Taweelah C Approx 455,000m /d and 1500MW Tender expected before the end of 2009
3
Yemen Mocha 3 x 50,000m /d phases Under investigation
Yemen Taiz Undetermined Feasibility study underway

Source: Global Water Intelligence

Page 31
Regional Industry Focus
Water Sector

India is another hot-spot but slow
Approaching water stress levels. No city in India has full-
day water supply. Most cities supply water for only a few hours
a day.
Considering that India has about 16% of the world population
but only 4% of the total average annual river run-off, it is no
wonder that many areas of India, both rural and urban, the
growing shortage of water is reaching crisis proportions. The
causes of the water shortage are varied, from inadequate
infrastructure, excessive ground water pumping to rising
demand by industrial and commercial enterprises.
It has been estimated that by as early as 2020, India’s demand
for water will exceed all sources of supply. India is therefore
rapidly approaching entry into the water stress league. Water
stress threshold is defined as renewable water resources below
1,700 m3/person/year, with the water scarcity threshold
defined as below 1,000 m3/person/year. Already, 224 million
people live in water stress in river basins, and more than 67%
of the country’s renewable water is in areas that serve 33% of
the population. About 70% of irrigation needs and 80% of
municipal water supplies come from groundwater sources.
However, depleted aquifers and lowered groundwater tables
mean that this is no longer sustainable.

India - Per capita water availability approaching water stress levels

Year 1951 1991 2001 2025E 2050E

Per capita availability (cu m) 5,200 2,200 1,820 1,340 1,140

Source: Central Water Commission

Water availability per capita versus selected countries

18 16.4
15.8
16

14
Water Availability ('000 CU.M)

11.3
12
9.4
8.9
10 8.8
7.6
6.9
8
5.6
5.5
6
3 3.1
4 2.2
2.7
1.9 1.9
1.4 1.6 1.3 1.2 1.2
2

0
China India PAK UK USA Bangladesh Nepal

1975 2000 2025

Source: Central Water Commission

Page 32

Government support is a great thrust to infrastructure
development. According to governmental agencies in charge
of the water supply and sanitation sector, an investment of
about INR935b (U$20.2b) in the 11th five-year plan (2007-
2012) and INR1115b in the 12th five-year plan (2012-2017)
will be required to meet the development goals of India. This
amount accounts for 0.55% of India’s gross domestic product
India’s Five-Year plans for water and wastewater treatment
1000
Spending Requirement (INR Billion)
900
800
700
600
500
400
300
200
100
0
Rura l Urba n
2002 -2007
W ater Supply
Source: Frost & Sullivan
India also gets biggest share of international water
aids. India receives almost twice as much development
assistance for water, sanitation and water resources
management as any other country, according to data from
the Organization for Economic Co-operation and
Development. India accounts for 13% of all commitments in
global water aid for 2006-07, receiving an annual average
of about US$830m, more than double the amount provided
to China. India's biggest water and sanitation donor is
Japan, which provided US$635m, followed by the World
Bank with US$130m. The annual average for 2004-06,
however, was about half as much at US$448m, of which
Japan provided US$293m and the World Bank US$87m. The
World Bank and the Asian Development Bank are among
India's other important external partners in water supply
and sanitation. In particular, Indian states are keenly tapping
ADB’s multi tranche financing facility (MFF), with its reduced
Regional Industry Focus
Water Sector
(GDP) during the ten-year period from 2007 to 2017. Although
actual funding may fall short of the quoted figure, the
mammoth allocation is positive and independent market
researcher Frost & Sullivan noted that at least 60-70% of the
total allocations tend to be expended during the planned
period.
Rura l Urba n Rura l Urba n
2007 -2012 2012 -2017
Fi ve Ye a r Pl a n
Sanitation Total
commitment fees and flexible long-term management set-up.
Already ongoing are four MFFs for urban development investment
programs in North Karnataka (US$862m), Jammu and Kashmir
(US$1,260m), Rajasthan (US$450m), and Uttarakhand
(US$1,589.2m). Included in these MFFs are major investments for
the development of urban water supply and sanitation services.
Out to become India’s hydropower state, Himachal Pradesh also
tapped US$800m worth of MFF for clean energy advancement,
including the development of four medium to large hydropower
projects. In agriculture-dependent Orissa, one of the country’s
poorest states, an MFF of US$188.2m is promoting investments to
modernize irrigation infrastructure and water resources
management systems. Besides these, six more MFFs are financing
infrastructure developments and investment programs on energy,
roads and railways. More are being processed, and others will be
proposed in the next few years as the deadline for the Millennium
Development Goals draws near.
Page 33
Regional Industry Focus
Water Sector
Sector-wise requirement of water in India
1,200
1,000 83%
Billion cubic meters
800
85%
600
400
200 7%
7% 7%
-
Domestic Irrigation
2000
Source: Central Water Commission
Government affords great support to wastewater
treatment. The total Indian water and wastewater treatment
market was estimated to be at about INR 46.55b as of 2008.
The industrial sector was the major end user for the water and
wastewater treatment market followed by the municipal
sector. This scenario is expected to change in the short run
(2009-2010), with the municipal sector likely to emerge as the
major end user with a share of 60% in 2010 due to the
increased investment toward water supply and sanitation. The
government set aside a huge outlay for water supply and
wastewater treatment through various channels such as urban
development, drinking water, water resources, rural water
supply and sanitation, and the National River Conservation Plan
(NRCP) through the Ministry of Environment and Forests
(MoEF). This opens up a wide array of opportunities for the
water and wastewater treatment market participants in the
form of wastewater equipment, transmission networks for
wastewater disposal, and construction of treatment plants.
Water Re-Use is creative and cost effective. In India, most
of the municipal and industrial wastewater produced is either
un-treated or under-treated and disposed of in surface water
bodies, where it often contaminates the local water supply.
Because acute shortages of water persist in virtually all cities
and rural townships at the same time, the volume of
wastewater is increasing and reuse represents one of the
largest potential sources of “new water” in India. In this
respect, the US Agency for International Development (USAID)
Page 34
74%
9%
4%
1%
2%
0% 1%
Industry Energy
2025 2050
funded a large scale water reuse project in collaboration with
the Nagpur Municipal Corporation (NMC) in the state of
Maharashtra where USAID’s team developed a water reuse
project jointly with NMC to supply the state-owned power
generation company, MahaGenco, up to 110m litres of treated
wastewater per day to its new coal-fired power plant. For this,
NMC will build a new sewage treatment plant capable of
producing and conveying high quality water to MahaGenco.
This will result in the increased availability of fresh water from
regional water reservoirs to serve the NMC’s growing needs. It
is estimated that close to one million people will directly
benefit from this water reuse project. In expressing its
confidence in such an important project, the Government of
India, through its large scale city modernization scheme, the
Jawaharlal Nehru National Urban Renewal Mission, provided
NMC and MahaGenco with a 70% co-financing grant for the
US$28m project. We believe more of such projects will drive a
rising wave of opportunities for solutions provider involved in
recycled water in the near future.
Desalination: long term opportunity with huge growth
prospects. Drinking water scarcity is higher in coastal regions
in comparison with the interior parts of India as the
groundwater in coastal areas is saline and not suitable for
drinking. Therefore, desalination of seawater becomes an ideal
solution to bridge the widening gap between growing water
needs of urban population and scarcity in supply in major
coastal cities in India. Extending supply from dams or
 Regional Industry Focus
Water Sector

transporting through tankers has been proven costlier than
water supplied by desalination. Continuous efforts to amend
the desalination technology have brought down the cost of
desalination technique, thereby reducing the per litre cost of
water.
INR 390b of desal investments required to meet four-fold
surge in coastal water needs by 2026. In India, around 20
major cities are on the coastline and the water requirement for
all these cities in 2008 stood at 6,267 million litres per day
(MLD). The coastal cities experiencing tremendous growth are
Spain, and the Kutch Water Distribution Co in Gujrat to meet
the water requirement of industries in Kutch, are currently the
two major desalination plants in India. Chennai's second
desalination plant at Nemili has been announced and will be
90% funded by the Central government. Water companies are
still bidding for the development of this plant.
Water requirement in key coastal cities, 2008 and 2026
14000
12000

Water Requirement (MLD)

Mumbai, Chennai, Surat, Kolkata, and Vizag. Around 93% of 10000
the total water requirement from coastal cities is from these
8000
five cities. According to Frost & Sullivan, the projected water
6000
requirement for all coastal cities in 2026 is estimated to be
23,607 MLD, a four-fold increase from 2008. If the top five 4000
coastal cities (Mumbai, Chennai, Surat, Kolkata, and Vizag)
2000
that account for majority of the water demand, contemplate
on building desalination plants to meet 20% of the drinking 0
Mumbai Kolkata Chennai Surat Vizag Others
water needs by 2026, an investment worth INR 390b might
have to be put in place over the next 20 years. Without any 2008 2026
doubt, this is certainly huge market potential for desalination
solutions provider but it is also a gargantuan task requiring Source: Frost & Sullivan
strong political will at all levels of governments, in addition to
promoting private sector participation as is currently being seen
in two projects that are at different stages of implementation
in the city of Chennai.

Two and more coming up…Chennai Water Desalination

Limited for the municipal sector, by IVRCL and BEFESA Agua,

Desalination opportunities in India

3
India Karaikal, Pondicherry Initially 5,500m /d SWRO Technical bids are currently being evaluated
3
India Krishnapatnam Port 200,000m /d (44 MIGD) Bid evaluation delayed
3
India NIOT Chennai 10,000m /d NIOT is seeking local partners to invest
3
India Nemili (Chennai South/Central) 100,000m /d SWRO Bids evaluation delayed
3
India Port Blair, Adnaman and Nicobar 14,000m /d Feasibility study completed
Islands
3
India Tata Mundra Expansion to 100,000m /d Award expected in 2009
3
India Tuticorin, Tamilnadu Power-desal, up to 36,368m /d Project delayed
India Vadinar refinery, Gujarat GE appointed to undertake study

Page 35
Regional Industry Focus
Water Sector

Regional water stocks: PE and PB performances

Hyflux
PE band PB band
Share Price (SGD)
Share Price (SGD) 9
16 8 10.4x
14 104x 7
12 6 8.2x
79x 5
10
6.0x
8 4
55x
3 3.9x
6
31x 2
4
1 1.7x
2
7x 0
Jan-01
Jun-01
Nov-01
Apr-02
Sep-02
Feb-03
Jul-03
Dec-03
May-04

Mar-05
Oct-04

Aug-05
Jan-06
Jun-06
Nov-06
Apr-07
Sep-07
Feb-08
Jul-08
Dec-08
May-09
Oct-09
0
Jan-01
Jun-01
Nov-01
Apr-02
Sep-02
Feb-03
Jul-03
Dec-03
May-04

Mar-05
Aug-05
Oct-04

Jan-06
Jun-06
Nov-06
Apr-07
Sep-07
Feb-08
Jul-08
Dec-08
May-09
Oct-09

Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers

Epure
PE band PB band
Share Price (SGD) Share Price (SGD)
1.6 1.4
27x 4.3x
1.4 1.2
1.2 1.0
22x 3.4x
1.0 0.8
0.8 16x 2.5x
0.6
0.6 1.6x
10x 0.4
0.4
0.2
0.2 0.7x
4x
0.0 0.0
Sep-09

Feb-10
Oct-06

Mar-07

Aug-07

Jan-08

Jun-08

Nov-08

Apr-09
Feb-10
Oct-06

Mar-07

Aug-07

Jan-08

Jun-08

Nov-08

Apr-09

Sep-09

Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers

Page 36
 Regional Industry Focus
Water Sector

Hyflux Water Trust

PE band PB band
S h are Price (S G D ) S h are Price (S G D )
1.2 1.2

1.0 1.0
1.2x
0.8 27x 0.8
1.0x
23x
0.6 0.6 0.8x
19x
0.4 0.4 0.6x
14x
0.4x
0.2 10x 0.2

0.0 0.0
Apr-08

Sep-08

Feb-09

Dec-09

Apr-08

Sep-08

Feb-09

Dec-09
Nov-07

Nov-07
Jul-09

Jul-09
Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers

Asia Environment
PE band PB band
Share Price (SGD) Share Price (SGD)
3.5 1.8
1.6 3.4x
3.0
1.4
2.5 60x
1.2 2.6x
2.0 45x 1.0
1.8x
1.5 0.8
31x 0.6 0.9x
1.0
0.4
16x
0.5 0.2 0.1x
0.0 2x 0.0
Dec-03
May-04
Oct-04
Mar-05
Aug-05

Jun-06

Apr-07
Jan-06

Nov-06

Sep-07
Feb-08
Jul-08
Dec-08
May-09
Oct-09
Dec-03
May-04
Oct-04
Mar-05
Aug-05
Jan-06
Jun-06
Nov-06
Apr-07
Sep-07
Feb-08
Jul-08
Dec-08
May-09
Oct-09

Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers

Page 37
Regional Industry Focus
Water Sector

Thai Tap Water

PE band PB band
S h a r e P r ic e ( T H B ) S h a re P ric e ( T H B )
8 .0 7 .0 2 .6 x
7 .5 15x 6 .5
7 .0 2 .4 x
14x 6 .0
6 .5
5 .5 2 .1 x
6 .0
12x 5 .0
5 .5
1 .9 x
5 .0 10x 4 .5
4 .5 1 .6 x
9x 4 .0
4 .0
3 .5
3 .5
3 .0 3 .0

May-08

Oct-08

Mar-09

Aug-09

Jan-10
May-08

Oct-08

Mar-09

Aug-09

Jan-10

Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers

Beijing Ent Water

PE band PB band
S h a re P ric e ( H K $ ) 103x 81x S h a re P ric e ( H K $ )
5 .0 4 .5
4 .5 58x 4 .0
5 .8 x
4 .0 3 .5
3 .5 3 .0 4 .6 x
3 .0
36x 2 .5
2 .5 3 .3 x
2 .0
2 .0
1 .5 1 .5 2 .0 x
14x 1 .0
1 .0
0 .5 0 .5 0 .7 x
0 .0 0 .0
Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jan-08

Jun-08

Nov-08

Apr-09

Sep-09

Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers Feb-10

Tianjin Capital

PE band PB band
Share Price (HK$) Share Price (HK$)
10 8 2.5x
34x
9 7
8
26x 6 1.9x
7
6 5
5 18x 4 1.4x
4 3
3 10x 0.8x
2
2
2x 1
1 0.2x
0 0
Mar-07

Feb-10
Jan-00
Jun-00
Nov-00
Sep-01
Feb-02

Jan-99
Aug-99
Mar-00

Sep-03

Nov-04
Oct-00
May-01
Dec-01
Jul-02
Feb-03

Apr-04

Jun-05
Jan-06
Aug-06

Oct-07
May-08
Dec-08
Jul-09
Apr-01

Jul-02
Dec-02
May-03
Oct-03
Mar-04
Aug-04
Jan-05
Jun-05
Nov-05
Sep-06
Feb-07
Apr-06

Jul-07
Dec-07
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10

Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers

Page 38
 Regional Industry Focus
Water Sector

China Everbright Int’l

PE band PB band
Share Price (HK$) Share Price (HK$)
8 40x 8 5.0x
7 7
6 31x 6 3.8x
5 5
4 21x 4 2.7x
3 3
12x 1.5x
2 2
1 1
2x 0.4x
0 0

Jan-99
Jun-99
Nov-99
Apr-00
Sep-00
Feb-01
Jul-01
Dec-01
May-02
Oct-02
Mar-03
Aug-03
Jan-04
Jun-04
Nov-04
Apr-05
Sep-05
Feb-06
Jul-06
Dec-06
May-07
Oct-07
Mar-08
Aug-08
Jan-09
Jun-09
Nov-09
Apr-10
Jan-03
Jun-03
Nov-03
Apr-04
Sep-04
Feb-05
Jul-05
Dec-05
May-06
Oct-06
Mar-07
Aug-07
Jan-08
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10

Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers

China Water Affairs

PE band PB band

S h are Price (HK$)

S h are Price (HK$) 84x 9
4.2x
14 65x 8
12 7
3.3x
6
10 45x
5
8 2.3x
4
6 26x
3 1.4x
4 2
6x
2 1 0.4x
0
0
Apr-05

Sep-05

Feb-06

Jul-06

Dec-06

May-07

Oct-07

Mar-08

Aug-08

Jan-09

Jun-09

Nov-09
Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers

Page 39
Regional Industry Focus
Water Sector

Water indicators for China

Investment in urban environmental - Sewerage projects Investment completed in waste water
RMB bn RMB bn
45 25
40
35 20

30
15
25
20
10
15
10 5
5
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2000 2001 2002 2003 2004 2005 2006 2007

Source: China Statistical Yearbook on Environment 2008 Source: China Statistical Yearbook on Environment 2008

Waste water discharge Proportion of industrial waste water meeting discharge

standards
m tons %
60,000 100
90
50,000
80
40,000 70
60
30,000 50
40
20,000
30
10,000 20
10
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2000 2001 2002 2003 2004 2005 2006 2007

Source: China Statistical Yearbook on Environment 2008 Source: China Statistical Yearbook on Environment 2008

Water use/ value added of industry Municipal sewage treatment rate

3
m /RMB m % 11th five-year plan target
30 80
70
25
11th five-year plan target 60
20 50

15 40
30
10
20
5
10
0 0
2000 2001 2004 2005 2006 2007 2000 2001 2002 2003 2004 2005 2006 2007

Source: China Statistical Yearbook on Environment 2008 Source: China Statistical Yearbook on Environment 2008

Page 40
 Regional Industry Focus
Water Sector

Stock Profiles

Page 41
 Regional Industry Focus
Beijing Ent Water
Bloomberg: 371 HK | Reuters: 0371.HK

BUY HK$2.07 HSI : 21,479 More positive news flow

Price Target : 12-month HK$ 2.47 (Prev HK$2.23)
Potential Catalyst: New projects
• Aggressive expansion target of 10m tons in FY11, up from
1.5m tons in FY08
Analyst
Patricia Yeung +(852) 2863 8908 • Expect robust fully diluted EPS growth of 71% for FY10
patricia_yeung@hk.dbsvickers.com and 50% for FY11.
• TP at HK$2.23. Maintain BUY.

Price Relative Target to achieve daily capacity of 10m tons in FY11.

HK$ R e la t iv e Beijing Enterprises Water (BEW) has a competent technical
In d e x
4 .1 0 1255 team, strong government relationship as well as sufficient
financial resources. Given abundant business opportunities in
3 .6 0 1055
3 .1 0
2 .6 0
855
China, BEW has set an aggressive expansion target of 10m
2 .1 0 655
1 .6 0 455
tons treatment capacity by 2011, up from just 1.5m tons in
1 .1 0
0 .6 0
255 FY08. We have assumed the total capacity of 6m tons in FY10
0 .1 0 55 and 8m tons in FY11 in our model.
2005 2006 2007 2008 2009

B e ijin g E n t W a t e r (L H S ) R e la t iv e H S I IN D E X (R H S )
Full support from banks and parent. The above expansion
plan is estimated to require an aggregate capex of RMB8-
Forecasts and Valuation
10bn, which will be satisfied by internal resources, bank
borrowings and new shares issued to parent. BEW has full
FY Dec (HK$ m) 2008A 2009F 2010F 2011F support from banks in both China and Hong Kong, which will
Turnover 338 1,062 2,799 4,335 be able to fund two-thirds of the investment through project
EBITDA 123 302 605 1,066
Pre-tax Profit 55 143 297 473 financing. We estimate net gearing ratio to be just 45% in
Net Profit 31 108 251 391 FY10 on enlarged share capital.
Net Pft (Pre Ex.) 31 108 251 391
EPS (HK$) 0.04 0.03 0.07 0.11 Target price at HK$2.47. BEW has recently announced to
EPS Gth (%) (227.3) (14.4) 121.8 55.4 increase stake in BE-ZKC from 88.43% to 92% for HK$55.3m.
Diluted EPS (HK$) 0.04 0.04 0.06 0.09 We expect BEW to acquire the remaining 8% soon. There will
DPS (HK$) 0.00 0.00 0.01 0.01
BV Per Share (HK$) 0.73 0.54 0.60 0.71
be more positive news flow going forward. The current
PE (X) 54.2 63.3 28.5 18.4 valuation of over 30x FY10 fully diluted PE is at a premium to
Diluted PE (X) 54.2 58.9 32.7 22.1 the sector average among Hong Kong listed peers. However,
P/Cash Flow (X) 43.2 60.8 27.9 18.0 we believe it is justified for robust 71% FY10 and 50% FY11
EV/EBITDA (X) 24.2 32.2 21.4 15.5
Net Div Yield (%) 0.0 0.2 0.4 0.5 fully diluted EPS growth. Even if we assume a 20% share
P/Book Value (X) 2.8 3.9 3.4 2.9 dilution from asset injection, EPS growth would remain high at
Net Debt/Equity (X) 0.5 1.3 2.3 3.3 50% and 30% respectively. We have set our TP at HK$2.47,
ROAE (%) 3.5 5.9 12.7 17.2
based on 20% premium to NAV of HK$2.06. The stock has a
Earnings Rev (%): Nil Nil Nil strong rally recently. Any share price weakness would offer
Consensus EPS (HK$): 0.05 0.07 0.09 good buying opportunities.
ICB Industry: Industrials At A Glance
ICB Sector: Support Services
Issued Capital (m shrs) 3,466
Principal Business: Beijing Enterprises Water mainly provides water
Mkt Cap (HK$m/US$m) 7,174 / 926
sewage and consultancy services in China.
Major Shareholders (%)
Source of all data: Company, DBSV, Bloomberg, HKEX Beijing Enterprises 57.62
Wang Taoguang 9.47
Luo Dongfeng 5.94
F ree F loat (%) 26.97

Page 42
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed- LM / sa- DC
 Regional Industry Focus
Beijing Ent Water
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Turnover 338 1,062 2,799 4,335 Net Fixed Assets 13 1,056 2,167 3,554
Cost of Goods Sold (191) (659) (2,067) (3,070) Invts in Assocs & JVs 25 33 43 54
Gross Profit 147 403 733 1,264 Other LT Assets 3,283 3,796 5,718 8,081
Other Opng (Exp)/Inc (31) (121) (152) (228) Cash & ST Invts 835 550 440 396
Operating Profit 116 281 580 1,036 Inventory 4 13 34 53
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 647 745 1,151 1,653
Associates & JV Inc (1) 8 10 12 Other Current Assets 8 25 67 104
Net Interest (Exp)/Inc (60) (146) (293) (574) Total Assets 4,816 6,218 9,619 13,895
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 55 143 297 473 ST Debt 218 238 248 235
Tax (12) (14) (36) (71) Other Current Liab 735 686 1,105 1,474
Minority Interest (12) (21) (10) (12) LT Debt 1,667 2,972 5,700 9,247
Preference Dividend 0 0 0 0 Other LT Liabilities 199 199 199 199
Net Profit 31 108 251 391 Shareholder’s Equity 1,758 1,862 2,096 2,456
Net Profit before Except. 31 108 251 391 Minority Interests 240 261 271 283
EBITDA 123 302 605 1,066 Total Cap. & Liab. 4,816 6,218 9,619 13,895

Sales Gth (%) 1,597.0 214.4 163.7 54.9 Non-Cash Wkg. Cap (76) 97 146 336
EBITDA Gth (%) (4,811.5) 146.4 100.5 76.2 Net Cash/(Debt) (1,049) (2,660) (5,507) (9,087)
Opg Profit Gth (%) (4,569.2) 142.1 106.3 78.5
Net Profit Gth (%) (1,340.0) 246.9 133.7 55.4
Effective Tax Rate (%) 22.1 10.0 12.0 15.0

Cash Flow Statement (HK$ m) Rates & Ratio

FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 55 143 297 473 Gross Margins (%) 43.6 37.9 26.2 29.2
Dep. & Amort. 7 7 9 13 Opg Profit Margin (%) 34.4 26.5 20.7 23.9
Tax Paid (2) (7) (36) (71) Net Profit Margin (%) 9.2 10.1 9.0 9.0
(Pft)/ Loss on disposal of FAs (2) 0 0 0 ROAE (%) 3.5 5.9 12.7 17.2
Assoc. & JV Inc/(loss) 1 (8) (10) (12) ROA (%) 1.3 1.9 3.2 3.3
Chg in Wkg.Cap. (542) (460) (1,978) (2,558) ROCE (%) 4.4 5.3 7.3 8.7
Other Operating CF 66 152 299 580 Div Payout Ratio (%) 0.0 10.5 10.0 10.0
Net Operating CF (418) (172) (1,418) (1,574) Net Interest Cover (x) 1.9 1.9 2.0 1.8
Capital Exp.(net) (5) (1,049) (1,120) (1,400) Asset Turnover (x) 0.1 0.2 0.4 0.4
Other Invts.(net) 1 0 0 0 Debtors Turn (avg days) 350.8 239.3 123.6 118.0
Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 714.2 389.3 154.9 140.7
Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 4.1 4.8 4.2 5.1
Other Investing CF 29 0 0 0 Current Ratio (x) 1.6 1.4 1.3 1.3
Net Investing CF 25 (1,049) (1,120) (1,400) Quick Ratio (x) 1.6 1.4 1.2 1.3
Div Paid 0 (4) (17) (31) Net Debt/Equity (X) 0.5 1.3 2.3 3.3
Chg in Gross Debt 231 1,040 2,700 3,497 Capex to Debt (%) 0.3 32.7 18.8 14.8
Capital Issues 96 0 0 0 Z-Score (X) CASH CASH CASH CASH
Other Financing CF 871 (99) (255) (536) N.Cash/(Debt)PS (HK$) (0.4) (0.8) (1.6) (2.6)
Net Financing CF 1,198 936 2,428 2,930 Opg CFPS (HK$) 0.15 0.09 0.16 0.28
Net Cashflow 806 (285) (110) (44) Free CFPS (HK$) (0.52) (0.37) (0.73) (0.86)

Interim Income Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions

FY Dec 1H2008 2H2008 1H2009 FY Dec 2008A 2009F 2010F 2011F

Turnover 0 884 435 Revenues (HK$ m)

Cost of Goods Sold 0 (641) (261) Sewage treatment 138 380 609 1,303
Gross Profit 0 243 174 Construction 131 497 1,993 2,612
Other Oper. (Exp)/Inc 4 281 (57) Sewage technical 51 59 68 78
Operating Profit 4 525 117 Water supply 6 46 62 281
Other Non Opg (Exp)/Inc 0 0 0 Others 11 80 68 61
Associates & JV Inc 0 33 4 Total 338 1,062 2,799 4,335
Net Interest (Exp)/Inc (8) (62) (64) Operating profit (HK$ m)
Exceptional Gain/(Loss) 0 N/A N/A Sewage treatment 65 136 243 570
Pre-tax Profit (5) 495 57 Construction 17 65 259 340
Tax 0 (10) (4) Sewage technical 44 44 49 58
Minority Interest 0 (20) (10) Water supply (24) 4 9 56
Net Profit (5) 465 42 Others (1) 36 31 28
Net profit bef Except. (5) 465 43 Total 101 285 591 1,052
EBITDA 4 557 137 Operating profit Margins (%)
Sewage treatment 47.0 35.8 39.9 43.8
Sales Gth (%) N/A N/A N/A Construction 13.0 13.0 13.0 13.0
EBITDA Gth (%) N/A N/A 3,705.6 Sewage technical 86.0 75.0 72.0 75.0
Opg Profit Gth N/A N/A 3,161.1 Water supply (394.0) 8.0 15.0 20.0
Net Profit Gth (%) N/A N/A (991.5) Others (12.4) 45.0 45.0 45.0
Gross Margins (%) N/A 27.5 40.0 Total 29.8 26.8 21.1 24.3
Opg Profit Margins (%) N/A 59.3 27.0 Key Assumptions
Net Profit Margins (%) N/A 52.6 9.6 Effective annual sewage 335.8 434.4 801.2 1,860.4
capacity (m tons) 1,413.0
Annual treated sewage (m 114.3 343.7 636.4 1,413.0
tons)
Utilization rate (%) 34.0 79.1 79.4 76.0
Source: Company, DBS Vickers

Page 43
 Regional Industry Focus
China Everbright Intl
Bloomberg: 257 HK | Reuters: 0257.HK

BUY HK$3.46 HSI : 21,479 More aggressive capex assumptions

Price Target : 12-month HK$ 4.26
• Aggressive capex assumptions on stronger balance
Potential Catalyst: Tax privileges, more new projects
sheet
Analyst
Patricia Yeung +(852) 2863 8908
• More tax privileges expected
patricia_yeung@hk.dbsvickers.com • TP at HK$4.26. Maintain BUY
“Recipients of this report, received from DBS Vickers Research
(Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6398 7954
in respect of any matters arising from or in connection with this report.”
Strengthened balance sheet. Following the share
placement (480m shares at HK$3.03ps) to raise
HK$1.4bn, we estimate its net debt to equity ratio to fall
Price Relative to around 30% in FY10, which is a very low level,
HK$
4.80
Relative Index
considering the stable cashflow from the existing
4.30
683
projects. Hence, China Everbright Int’l could gear up its
3.80 583
3.30
483
expansion plan. We have assumed capex to be HK$1.5bn
2.80
2.30 383 and HK$1.6bn for FY10 and FY11 respectively, compared
1.80
1.30
283
with management’s guidance of HK$1bn each year.
183
0.80
0.30 83 More tax privileges expected. Environmental
2005 2006 2007 2008 2009
protection sector is paying standard tax rate of 25% but
China Everbright Intl (LHS) Relative HSI INDEX (RHS)
enjoying some tax privileges, such as immediate refund
Forecasts and Valuation of VAT for waste-to-energy projects and no VAT for
waste water treatment plants. In addition, both plants
will enjoy three years of tax exemption plus three years
FY Dec (HK$ m) 2008A 2009F 2010F 2011F
of 50% tax discount. Market is expecting more tax
Turnover 1,863 1,662 2,760 3,197
EBITDA 585 762 1,009 1,305 privileges to be implemented (possibly lower tax rate).
Pre-tax Profit 461 563 794 1,063 We believe this could be a share price catalyst.
Net Profit 339 397 569 743
Net Pft (Pre Ex.) 287 397 569 743 Target price at HK$4.26. We have set our target price
EPS (HK$) 0.11 0.12 0.16 0.20 at HK$4.26, based on 20% premium to NAV. We believe
EPS Gth (%) (0.8) 12.5 29.2 30.5
such premium is justified, given its strengthened financial
Diluted EPS (HK$) 0.11 0.12 0.16 0.20
DPS (HK$) 0.02 0.02 0.02 0.03 position, leading market position, comprehensive services
BV Per Share (HK$) 0.90 1.28 1.42 1.59 and diversification into alternative energy.
PE (X) 37.9 28.5 22.0 16.9
PE Pre Ex. (X) 37.9 28.5 22.0 16.9
P/Cash Flow (X) 28.9 25.7 20.6 16.0
EV/EBITDA (X) 22.6 16.4 14.8 12.3
Net Div Yield (%) 0.5 0.5 0.7 0.9
P/Book Value (X) 3.9 2.7 2.4 2.2
Net Debt/Equity (X) 0.7 0.2 0.4 0.5
ROAE (%) 12.9 10.7 11.7 13.6
At A Glance
Earnings Rev (%): Nil Nil Nil Issued Capital (m shrs) 3,631
Consensus EPS (HK$): 0.13 0.15 0.17 Mkt Cap (HK$m/US$m) 12,565 / 1,621
Major Shareholders (%)
China Ev erbright Hldgs 48.43
ICB Industry: Industrials F ree F loat (%) 51.57
ICB Sector: Support Services Av g Daily V olume (m shrs) 15.8
Principal Business: China Everbright International Limited mainly
provides environmental protection project management and
consultancy services and operates toll bridge in China.
Source of all data: Company, DBSV, Bloomberg, HKEX

Page 44
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed- LM / sa- DC
 Regional Industry Focus
China Everbright Intl
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Turnover 1,863 1,662 2,760 3,197 Net Fixed Assets 165 166 171 156
Cost of Goods Sold (1,209) (852) (1,629) (1,743) Invts in Assocs & JVs 0 0 0 0
Gross Profit 654 810 1,131 1,454 Other LT Assets 4,745 5,480 7,040 8,732
Other Opng (Exp)/Inc (106) (90) (161) (187) Cash & ST Invts 562 1,994 1,242 959
Operating Profit 548 720 971 1,266 Inventory 12 10 17 20
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 681 702 979 1,212
Associates & JV Inc 0 0 0 0 Other Current Assets 137 122 203 235
Net Interest (Exp)/Inc (140) (157) (176) (204) Total Assets 6,301 8,474 9,652 11,313
Exceptional Gain/(Loss) 52 0 0 0
Pre-tax Profit 461 563 794 1,063 ST Debt 546 546 546 546
Tax (95) (130) (183) (271) Other Current Liab 480 552 830 941
Minority Interest (26) (37) (43) (49) LT Debt 2,065 2,318 2,676 3,530
Preference Dividend 0 0 0 0 Other LT Liabilities 79 79 79 79
Net Profit 339 397 569 743 Shareholder’s Equity 2,820 4,631 5,130 5,777
Net Profit before Except. 287 397 569 743 Minority Interests 311 348 391 440
EBITDA 585 762 1,009 1,305 Total Cap. & Liab. 6,301 8,474 9,652 11,313

Sales Gth (%) 38.2 (10.8) 66.1 15.8 Non-Cash Wkg. Cap 349 282 369 526
EBITDA Gth (%) 43.7 30.4 32.4 29.3 Net Cash/(Debt) (2,049) (870) (1,980) (3,117)
Opg Profit Gth (%) 44.8 31.4 34.8 30.5
Net Profit Gth (%) 0.3 17.0 43.5 30.5
Effective Tax Rate (%) 20.7 23.0 23.0 25.5

Cash Flow Statement (HK$ m) Rates & Ratio

FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 461 563 794 1,063 Gross Margins (%) 35.1 48.7 41.0 45.5
Dep. & Amort. 37 42 39 39 Opg Profit Margin (%) 29.4 43.3 35.2 39.6
Tax Paid (21) (7) (183) (271) Net Profit Margin (%) 18.2 23.9 20.6 23.2
(Pft)/ Loss on disposal of FAs (52) 0 0 0 ROAE (%) 12.9 10.7 11.7 13.6
Assoc. & JV Inc/(loss) 0 0 0 0 ROA (%) 6.3 5.4 6.3 7.1
Chg in Wkg.Cap. (1,672) (815) (1,671) (1,872) ROCE (%) 8.7 8.1 8.9 9.8
Other Operating CF 161 157 176 204 Div Payout Ratio (%) 14.8 16.7 15.0 15.0
Net Operating CF (1,087) (59) (844) (838) Net Interest Cover (x) 3.9 4.6 5.5 6.2
Capital Exp.(net) (54) (20) (20) 0 Asset Turnover (x) 0.3 0.2 0.3 0.3
Other Invts.(net) 0 0 0 0 Debtors Turn (avg days) 108.9 151.8 111.2 125.1
Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 125.4 200.9 128.3 161.4
Div from Assoc & JV 1 0 0 0 Inventory Turn (avg days) 2.7 4.9 3.1 3.9
Other Investing CF 213 0 0 0 Current Ratio (x) 1.4 2.6 1.8 1.6
Net Investing CF 159 (20) (20) 0 Quick Ratio (x) 1.2 2.5 1.6 1.5
Div Paid (52) (24) (70) (96) Net Debt/Equity (X) 0.7 0.2 0.4 0.5
Chg in Gross Debt 986 254 358 854 Capex to Debt (%) 2.1 0.7 0.6 0.0
Capital Issues 8 1,438 0 0 Z-Score (X) 2.0 2.0 3.1 3.0
Other Financing CF (7) (157) (176) (204) N.Cash/(Debt)PS (HK$) (0.7) (0.2) (0.5) (0.9)
Net Financing CF 935 1,511 112 555 Opg CFPS (HK$) 0.19 0.23 0.23 0.29
Net Cashflow 7 1,432 (752) (283) Free CFPS (HK$) (0.36) (0.02) (0.24) (0.23)

Interim Income Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions

FY Dec 2H2007 1H2008 2H2008 1H2009 FY Dec 2008A 2009F 2010F 2011F

Turnover 828 789 1,074 1,102 Revenues (HK$ m)

Cost of Goods Sold (564) (477) (732) (680) Solid waste 845 581 1,930 2,244
Gross Profit 264 311 342 422 Waste water 890 970 706 811
Other Oper. (Exp)/Inc (37) (92) (14) (62) Infrastructure investment 108 111 124 142
Operating Profit 227 219 329 360 Property investment 20 0 0 0
Other Non Opg (Exp)/Inc 0 0 0 0 Total 1,863 1,662 2,760 3,197
Associates & JV Inc (1) 0 0 0
Net Interest (Exp)/Inc (37) (66) (74) (86) Segmental profit (HK$ m)
Exceptional Gain/(Loss) 0 52 0 0 Solid waste 288 336 544 725
Pre-tax Profit 190 206 255 274 Waste water 226 308 367 475
Tax (8) (57) (39) (59) Infrastructure investment 75 100 114 131
Minority Interest (11) (15) (12) (18) Property investment 63 0 0 0
Net Profit 170 134 205 197 Total 652 745 1,025 1,331
Net profit bef Except. 170 82 205 197
EBITDA 242 233 351 360 Segmental profit Margins (%)
Solid waste 34.1 57.9 28.2 32.3
Sales Gth (%) 58.9 51.8 29.7 39.7 Waste water 25.3 31.8 52.0 58.6
EBITDA Gth (%) (43.3) 41.5 45.1 54.2 Infrastructure investment 69.6 90.7 91.8 92.0
Opg Profit Gth (44.1) 44.9 44.7 64.1 Property investment 313.4 N/A N/A N/A
Net Profit Gth (%) (54.5) (19.9) 20.3 46.8 Total 35.0 44.8 37.1 41.6
Gross Margins (%) 31.9 39.5 31.9 38.3 Key Assumptions
Opg Profit Margins (%) 27.4 27.8 30.6 32.7 Volume of treated sewage (m 363.9 349.3 486.1 526.3
Net Profit Margins (%) 20.6 17.0 19.1 17.9 tons)
Volume of waste processed 937.0 1,396.9 1,523.6 2,302.4
('000 tons)
Amount of uploaded electricity 122.4 177.6 211.6 300.7
(m kWH)
Source: Company, DBS Vickers

Page 45
 Regional Industry Focus
China Water Affairs
Bloomberg: 855 HK | Reuters: 0855.HK

NOT RATED HK$2.32 HSI : 21,479 Ample room for imagination

Price Target : n.a.
Potential Catalyst: Increase stake in associates
• 20-30% organic growth for core water business
• Increasing stake in hydropower business and CWIIC
Analyst
Patricia Yeung +(852) 2863 8908 • Unlocking embedded value of strategic investment
patricia_yeung@hk.dbsvickers.com
• Trading at discount to peers

Strong organic growth for water business. While China

Price Relative
HK$ Relative Index
Water Affairs (CWA) continues to look for opportunities to
6.30 1082
increase its water capacity (currently 4.1m m3, up from 3.9m m3
5.30 882 by end-FY09), we expect organic growth at 20-30% for its core
4.30
682 water business, on the back of double digit growth in sales
3.30

2.30
482 volume and 5-8% tariff hike. Thanks to better economies of
1.30
282 scale, we should see gradual improvement in profitability in the
0.30 82 core water business.
2005 2006 2007 2008 2009

China Water Affairs (LHS) Relative HSI INDEX (RHS) Excitement comes from its investments. Major swing factors
to earnings come from its water and non-water investments.
Forecasts and Valuation Firstly, rally in stock market will increase value of its listed
investment. Secondly, CWA intends to increase its stake in its
FY Mar (HK$ m) 2006A 2007A 2008A 2009A investments in hydropower plants and China Water Industry
Turnover 53 135 766 1,033 Investment Corp. (CWIIC). Thirdly, disposal gain from
EBITDA (9) 36 581 264 development properties and industrial land may be booked. In
Pre-tax Profit (20) 148 655 327
Net Profit (39) 63 427 115 addition, CWA is looking to spin-off some of its non-water
Net Pft (Pre Ex.) (34) (79) 232 (127) related subsidiaries with the first one being the tourism
EPS (HK$) (0.07) 0.07 0.35 0.09 business. Management reckons that the embedded value of its
EPS Gth (%) N/A (197.2) 428.2 (72.9)
assets could be unlocked through these exercises and funding
Diluted EPS (HK$) (0.07) 0.07 0.35 0.09
DPS (HK$) 0.00 0.00 0.00 0.00 could be invested back in its core water business.
BV Per Share (HK$) 0.29 0.88 1.42 1.55
PE (X) nm 35.4 6.7 24.7
Valuation. According to market consensus, CWA is estimated
P/Cash Flow (X) (41.6) 26.1 5.9 14.4 to have EPS CAGR of almost 57% from FY3/09 to FY3/11,
EV/EBITDA (X) (154.1) 67.5 7.0 17.8 compared with industry average of around 20%. We believe
Net Div Yield (%) 0.0 0.0 0.0 0.0 such high growth rate is distorted by the non-recurring gains
P/Book Value (X) 8.0 2.6 1.6 1.5
Net Debt/Equity (X) CASH CASH 0.3 0.4 from investment or financial assets. We believe the growth rate
ROAE (%) (16.0) 6.1 24.3 6.3 of its core water business should be lower at 25-40% going
forward, underpinned by additional capacity, improved
utilization and higher water tariff. It is trading at c.10x FY3/11
PE or 1.2x PB which is at discount to its peers.
At A Glance
ICB Industry: Utilities
Issued Capital (m shrs) 1,328
ICB Sector: Gas, Water & Multiutilities
Mkt Cap (HK$m/US$m) 3,080 / 397
Principal Business: China Water Affairs is engaged in business of
Major Shareholders (%)
water supply, sewage treatment and water conserving sea
buckthron projects
Duan Chuan Liang 19.08
Source of all data: Company, DBSV, Bloomberg, HKEX Atlantis Inv estment Management 18.32
Asset F ull Resources 8.47
Zesiger Capital Group 5.50
HSBC Global Asset Management 5.12
F ree F loat (%) 43.51
Av g Daily V olume (m shrs) 6.7

Page 46
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed- LM / sa- DC
 Regional Industry Focus
China Water Affairs
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Mar 2006A 2007A 2008A 2009A FY Mar 2006A 2007A 2008A 2009A

Turnover 53 135 766 1,033 Net Fixed Assets 227 821 1,496 2,185
Cost of Goods Sold (25) (56) (429) (614) Invts in Assocs & JVs 0 1 99 117
Gross Profit 28 79 337 420 Other LT Assets 6 523 1,383 1,631
Other Opng (Exp)/Inc (44) (83) (184) (272) Cash & ST Invts 235 520 423 546
Operating Profit (15) (4) 153 148 Inventory 8 26 40 46
Other Non Opg (Exp)/Inc 0 18 345 0 Debtors 37 115 545 648
Associates & JV Inc 0 0 14 17 Other Current Assets 18 254 442 373
Net Interest (Exp)/Inc (1) (9) (51) (80) Total Assets 531 2,259 4,427 5,546
Exceptional Gain/(Loss) (4) 143 195 242
Pre-tax Profit (20) 148 655 327 ST Debt 59 129 182 333
Tax (5) (45) (135) (98) Other Current Liab 73 427 919 1,069
Minority Interest (14) (40) (93) (114) LT Debt 60 364 972 1,247
Preference Dividend 0 0 0 0 Other LT Liabilities 0 55 128 209
Net Profit (39) 63 427 115 Shareholder’s Equity 241 1,044 1,758 1,876
Net Profit before Except. (34) (79) 232 (127) Minority Interests 98 240 469 812
EBITDA (9) 36 581 264 Total Cap. & Liab. 531 2,259 4,427 5,546

Sales Gth (%) N/A 154.6 468.3 35.0 Non-Cash Wkg. Cap (10) (32) 107 (2)
EBITDA Gth (%) N/A (528.2) 1,495.1 (54.6) Net Cash/(Debt) 116 27 (731) (1,034)
Opg Profit Gth (%) N/A (75.0) (4,118.4) (3.1)
Net Profit Gth (%) N/A (264.2) 573.8 (73.1)
Effective Tax Rate (%) N/A 30.2 20.6 30.0

Cash Flow Statement (HK$ m) Rates & Ratio

FY Mar 2006A 2007A 2008A 2009A FY Mar 2006A 2007A 2008A 2009A
Pre-Tax Profit (20) 148 655 327 Gross Margins (%) 53.7 58.4 44.0 40.6
Dep. & Amort. 7 23 70 99 Opg Profit Margin (%) (28.7) (2.8) 19.9 14.3
Tax Paid (1) (2) (6) (19) Net Profit Margin (%) (73.0) 47.1 55.8 11.1
(Pft)/ Loss on disposal of FAs (2) 0 (353) (197) ROAE (%) (16.0) 6.1 24.3 6.3
Assoc. & JV Inc/(loss) 0 0 (14) (17) ROA (%) (7.3) 2.8 9.7 2.3
Chg in Wkg.Cap. 9 (16) 164 (46) ROCE (%) (3.3) (0.1) 3.5 2.6
Other Operating CF 25 (139) (194) (40) Div Payout Ratio (%) N/A 0.0 0.0 0.0
Net Operating CF 19 13 322 107 Net Interest Cover (x) (21.7) (0.4) 3.0 1.8
Capital Exp.(net) 7 (486) (370) (341) Asset Turnover (x) 0.1 0.1 0.2 0.2
Other Invts.(net) 0 0 0 0 Debtors Turn (avg days) 251.8 311.9 259.7 210.6
Invts in Assoc. & JV 0 0 (74) (65) Creditors Turn (avg days) 1,361.6 2,491.8 535.2 489.8
Div from Assoc & JV 0 0 11 12 Inventory Turn (avg days) 168.1 281.1 40.3 30.4
Other Investing CF (4) (203) (634) 11 Current Ratio (x) 2.3 1.6 1.3 1.2
Net Investing CF 2 (690) (1,067) (383) Quick Ratio (x) 2.1 1.1 0.9 0.9
Div Paid 0 0 0 0 Net Debt/Equity (X) CASH CASH 0.3 0.4
Chg in Gross Debt (16) 457 675 429 Capex to Debt (%) (5.7) 98.6 32.0 21.6
Capital Issues 219 509 43 (39) Z-Score (X) CASH CASH CASH CASH
Other Financing CF (9) (4) (70) 9 N.Cash/(Debt)PS (HK$) 0.1 0.0 (0.6) (0.9)
Net Financing CF 194 962 648 399 Opg CFPS (HK$) 0.02 0.03 0.13 0.13
Net Cashflow 215 285 (98) 123 Free CFPS (HK$) 0.04 (0.49) (0.04) (0.19)

Interim Income Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions

FY Mar 1H2008 2H2008 1H2009 2H2009 FY Mar 2006A 2007A 2008A 2009A

Turnover 364 401 386 647 Revenues (HK$ m)

Cost of Goods Sold (226) (272) (249) (463) City water supply 24 98 384 657
Gross Profit 138 129 137 184 Sewage treatment 9 0 27 82
Other Oper. (Exp)/Inc (55) (59) (105) (68) Others 20 37 355 294
Operating Profit 83 70 32 116 Total 53 135 766 1,032
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 0 14 4 12
Net Interest (Exp)/Inc (14) (37) (40) (40)
Exceptional Gain/(Loss) 322 218 (200) 443
Pre-tax Profit 391 264 (204) 531
Tax (120) (16) 33 (131)
Minority Interest (71) (22) (14) (99)
Net Profit 201 227 (186) 301
Net profit bef Except. (121) 8 14 (142)
EBITDA 118 83 36 129

Sales Gth (%) 490.3 449.7 6.0 61.3

EBITDA Gth (%) 274.7 (500.5) (69.6) 54.4
Opg Profit Gth 200.4 (322.0) (61.8) 66.7
Net Profit Gth (%) 1,229.1 9.9 (192.7) 32.9
Gross Margins (%) 37.9 32.2 35.4 28.4
Opg Profit Margins (%) 22.8 17.4 8.2 18.0
Net Profit Margins (%) 55.1 56.4 (48.2) 46.5

Source: Company, DBS Vickers

Page 47
 Regional Industry Focus
Tianjin Cap. Environ.
Bloomberg: 1065 HK | Reuters: 1065.HK

BUY HK$2.28 HSI : 21,479 Improved financials

Price Target : 12-month HK$2.86
Potential Catalyst: New projects, payment of receivables
• Strengthened balance sheet with shortened account
receivable turnover days

Analyst
• Steady water volume but margin improved with
Patricia Yeung +(852) 2863 8908 lower interest expenses
patricia_yeung@hk.dbsvickers.com
• Buy with TP at HK$2.86

Price Relative
Reduced net debt-equity ratio. During the first nine
HK$ Relative Index
months of FY09, Tianjin Capital received a total of
6.50
237 RMB1.4bn for the settlement of account receivables. This
5.50
187
sum includes sewage water treatment fees owed in
previous years as well as part of the new fees for the
4.50

3.50
current year. This is a substantial improvement in account
137

2.50

1.50
87
receivables turnover days, though still well above the
0.50
2005 2006 2007 2008
37
2009
average at over 200 days. As a result, bank borrowings,
Tianjin Cap. Environ. (LHS) Relative HSI INDEX (RHS)
as well as interest expenses, were reduced. Net debt-
equity ratio improved substantially from 93.7% in FY08
Forecasts and Valuation to c.51% in 3QFY09. This should help Tianjin Capital
resume its expansion plan.
FY Dec (RMB m) 2008A 2009F 2010F 2011F Margin improvement. Given the lack of contribution
Turnover 1,093 1,254 1,377 1,482 from new projects, water volume will be steady.
EBITDA 710 789 878 900 However, lower interest expense helps boost net margin
Pre-tax Profit 310 396 443 431
Net Profit 231 294 329 320 by 2ppt to 22.5%, posting a strong earnings growth of
Net Pft (Pre Ex.) 231 294 329 320 27% for FY09. However, sustainability of the profitability
EPS (RMB) 0.16 0.21 0.23 0.22 depends highly on the payment schedule of the Tianjin
EPS (HK$) 0.18 0.23 0.26 0.25
EPS Gth (%) 7.3 27.2 11.9 (2.9)
government.
Diluted EPS (HK$) 0.18 0.23 0.26 0.25 BUY but the least preferred stock. We maintain our
DPS (HK$) 0.04 0.03 0.03 0.03
BV Per Share (HK$) 2.47 2.65 2.88 3.10 BUY rating on the counter with target price at HK$2.86,
PE (X) 12.4 9.7 8.7 9.0 based on 15% discount to NAV. The current valuation of
PE Pre Ex. (X) 12.4 9.7 8.7 9.0 8.7x FY10 PE is also not demanding. Nevertheless, given
P/Cash Flow (X) 6.9 5.8 5.1 5.2
EV/EBITDA (X) 8.5 6.1 5.8 5.4
its lack of transparency, weak ability in securing new
Net Div Yield (%) 1.8 1.4 1.5 1.5 orders and potential threat of prolonged payment from
P/Book Value (X) 0.9 0.9 0.8 0.7 customers, we prefer China Everbright International.
Net Debt/Equity (X) 0.9 0.5 0.6 0.5
ROAE (%) 7.7 9.1 9.5 8.5
At A Glance
Earnings Rev (%): Nil Nil Nil Issued Capital - H shares (m shs) 340
Consensus EPS (HK$): 0.19 0.16 0.17 - Non H shrs (m shs) 1,087
H shs as a % of Total 24
H Mkt Cap (HK$m/US$m) 758 / 98
ICB Industry: Utilities Major Shareholders (%)
ICB Sector: Gas, Water & Multiutilities Tianjin Municipal 54.30
Principal Business: Tianjin Capital is principally engaged in the Major H Shareholders (%)
ISIS Asset Management 5.08
construction, design, management, operation, technological
H Shares-F ree F loat (%) 94.92
consultation and auxilliary services of sewage water treatment plant Av g Daily V olume (m shrs) 4.3
and related infrastrucal facilities.
Source of all data: Company, DBSV, Bloomberg, HKEX

Page 48
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed- LM / sa- DC
 Regional Industry Focus
Tianjin Cap. Environ.
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Turnover 1,093 1,254 1,377 1,482 Net Fixed Assets 2,586 2,756 3,396 3,434
Cost of Goods Sold (313) (392) (418) (493) Invts in Assocs & JVs 40 41 42 42
Gross Profit 780 862 959 989 Other LT Assets 3,083 2,360 2,286 2,212
Other Opng (Exp)/Inc (256) (278) (316) (324) Cash & ST Invts 909 1,407 1,105 1,400
Operating Profit 524 584 643 664 Inventory 9 11 12 13
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 933 656 720 774
Associates & JV Inc 1 1 1 0 Other Current Assets 0 0 0 0
Net Interest (Exp)/Inc (215) (189) (201) (233) Total Assets 7,560 7,229 7,561 7,875
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 310 396 443 431 ST Debt 1,484 1,084 1,084 1,084
Tax (77) (99) (111) (108) Other Current Liab 377 522 562 595
Minority Interest (2) (3) (3) (4) LT Debt 2,449 2,149 2,149 2,149
Preference Dividend 0 0 0 0 Other LT Liabilities 24 24 24 24
Net Profit 231 294 329 320 Shareholder’s Equity 3,108 3,329 3,618 3,894
Net Profit before Except. 231 294 329 320 Minority Interests 119 122 125 129
EBITDA 710 789 878 900 Total Cap. & Liab. 7,560 7,229 7,561 7,875

Sales Gth (%) 16.7 14.8 9.8 7.6 Non-Cash Wkg. Cap 565 145 170 192
EBITDA Gth (%) 15.0 11.2 11.4 2.4 Net Cash/(Debt) (3,024) (1,827) (2,128) (1,833)
Opg Profit Gth (%) 18.6 11.4 10.2 3.3
Net Profit Gth (%) 10.4 27.2 11.9 (2.9)
Effective Tax Rate (%) 24.8 25.0 25.0 25.0

Cash Flow Statement (RMB m) Rates & Ratio

FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 310 396 443 431 Gross Margins (%) 71.4 68.7 69.6 66.7
Dep. & Amort. 185 130 160 162 Opg Profit Margin (%) 47.9 46.6 46.7 44.8
Tax Paid (111) (7) (111) (108) Net Profit Margin (%) 21.1 23.4 23.9 21.6
(Pft)/ Loss on disposal of FAs (5) 0 0 0 ROAE (%) 7.7 9.1 9.5 8.5
Assoc. & JV Inc/(loss) (1) (1) (1) 0 ROA (%) 3.4 4.0 4.5 4.1
Chg in Wkg.Cap. (295) 328 (26) (22) ROCE (%) 6.2 6.3 7.0 7.0
Other Operating CF 215 463 275 307 Div Payout Ratio (%) 21.8 13.2 13.2 13.2
Net Operating CF 298 1,309 741 770 Net Interest Cover (x) 2.4 3.1 3.2 2.9
Capital Exp.(net) (885) (300) (800) (200) Asset Turnover (x) 0.2 0.2 0.2 0.2
Other Invts.(net) 0 0 0 0 Debtors Turn (avg days) 252.6 231.1 182.3 184.1
Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 938.4 734.0 841.0 655.5
Div from Assoc & JV 1 0 0 0 Inventory Turn (avg days) 22.8 19.5 22.4 17.4
Other Investing CF 49 450 0 0 Current Ratio (x) 1.0 1.3 1.1 1.3
Net Investing CF (835) 150 (800) (200) Quick Ratio (x) 1.0 1.3 1.1 1.3
Div Paid (57) (73) (41) (43) Net Debt/Equity (X) 0.9 0.5 0.6 0.5
Chg in Gross Debt 1,437 (700) 0 0 Capex to Debt (%) 22.5 9.3 24.7 6.2
Capital Issues 0 0 0 0 Z-Score (X) 1.2 1.2 1.2 1.3
Other Financing CF (274) (189) (201) (233) N.Cash/(Debt)PS (RMB) (2.4) (1.5) (1.7) (1.5)
Net Financing CF 1,106 (962) (242) (276) Opg CFPS (RMB) 0.47 0.78 0.61 0.63
Net Cashflow 569 498 (301) 294 Free CFPS (RMB) (0.47) 0.80 (0.05) 0.45

Interim Income Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions

FY Dec 2H2007 1H2008 2H2008 1H2009 FY Dec 2008A 2009F 2010F 2011F

Turnover 492 489 604 559 Revenues (RMB m)

Cost of Goods Sold (210) (222) (276) (268) Sewage water processing 976 1,125 1,228 1,308
Gross Profit 282 267 328 291 Tolls 67 66 68 70
Other Oper. (Exp)/Inc (66) (53) (25) (44) Tap water processing 44 53 63 74
Operating Profit 216 214 303 247 Water recycling and pipeline 48 63 76 91
Other Non Opg (Exp)/Inc 0 0 0 0 Others (42) (52) (57) (62)
Associates & JV Inc 1 2 (1) (1) Total 1,093 1,254 1,377 1,482
Net Interest (Exp)/Inc (96) (80) (128) (98) (RMB m)
Exceptional Gain/(Loss) 0 0 0 0 Sewage water processing 237 304 337 314
Pre-tax Profit 121 136 175 149 Tolls 59 60 62 64
Tax (41) (34) (43) (39) Tap water processing (3) (1) 3 6
Minority Interest 2 (2) (1) (2) Water recycling and pipeline 5 10 15 21
Net Profit 82 100 131 108 Others 0 0 0 0
Net profit bef Except. 82 100 131 108 Total 296 373 417 404
EBITDA 381 276 427 341 Margins (%)
Sewage water processing 24.3 27.1 27.4 24.0
Sales Gth (%) 15.6 9.9 22.9 14.3 Tolls 87.6 91.1 90.9 90.2
EBITDA Gth (%) 37.6 (0.7) 12.1 23.8 Tap water processing (7.1) (2.2) 4.8 7.9
Opg Profit Gth 24.4 (1.7) 40.4 15.4 Water recycling and pipeline 9.3 15.4 20.5 22.6
Net Profit Gth (%) 23.9 (21.6) 60.5 7.6 Others 1.0 0.0 0.0 0.0
Gross Margins (%) 57.3 54.7 54.3 52.1 Total 27.1 29.8 30.3 27.3
Opg Profit Margins (%) 43.9 43.8 50.2 44.2 Key Assumptions
Net Profit Margins (%) 16.6 20.5 21.7 19.3 Total sewage volume (m cub 688 805 886 945
m)
Source: Company, DBS Vickers

Page 49
 Regional Industry Focus
Asia Environment Holdings
Bloomberg: AENV SP | Reuters: ASEN.SI

BUY S$0.295 STI : 2,629.35 BOT to stabilize earnings

• 3Q09 net revenue blew expectations but cost
Price Target : 12-Month S$ 0.47 over-runs hurt margins
Potential Catalyst: Contract wins, new funding
• Recurring BOT income to support a steadier
Analyst earnings base, going forward
Ai Teng Tan +65 6398 7967
AiTeng@dbsvickers.com • Maintain BUY with 59% upside to TP of S$0.47
Suvro Sarkar +65 6398 7973 EPC still driving topline although cost over-runs hit
suvro@dbsvickers.com margins. 3Q09 revenue of RMB266.7m (+175% y-o-y)
was significantly higher than our forecast and net profit of
RMB17.9m (+53% y-o-y) doubled our previous forecast of
Price Relative
S$
RMB8m. Topline growth was largely driven by higher EPC
recognition of variation work for the Nantong project.
R e la t iv e In d e x
1 .0 0
0 .9 0
0 .8 0
285 Unfortunately, overall gross margin collapsed to 18% from
0 .7 0 235 37% in 3Q08 because variation was charged cost to cost
0 .6 0
0 .5 0
185 with little margin and there were slight cost over-runs for
0 .4 0 135 Xiuning, Wancheng and Jiangnin BOT projects. As margins
for new projects secured were reportedly lower due to
0 .3 0
85
0 .2 0
0 .1 0
2005 2006 2007 2008 2009
35
stiffer competition, we expect gross margin to remain
A s ia E n v ir o n m e n t H o ld in g s ( L H S ) R e la t iv e S T I IN D E X ( R H S )
pressured at around mid 20%, compared to the previous
range of 30-35%.

Forecasts and Valuation Higher BOT to replace declining EPC revenue. YTD,
AENV has secured only RMB120m of EPC contracts. We
FY Dec (RMB m) 2008A 2009F 2010F 2011F believe EPC wins are likely to reduce in the future and
Turnover 393 625 480 485 hence, have only assumed RMB70m of new wins in FY10.
EBITDA 100 129 161 178 AENV’s net orderbook currently stands at RMB200m to be
Pre-tax Profit 74 91 113 115 realized over the next one year. However, BOT earnings will
Net Profit 59 71 88 89 continue to grow as nine other water plants would start to
Net Pft (Pre Ex.) 59 71 88 89
operate by 4Q10. In FY10, we expect EPC to account for
EPS (S cts) 2.8 3.4 4.2 4.3
EPS Pre Ex. (S cts) 2.8 3.4 4.2 4.3 35% of gross profit, down from 54%, while BOT will grow
EPS Gth Pre Ex (%) (28) 20 24 2 to 36% of sales from 20%. Overall margins would improve
Diluted EPS (S cts) 2.8 3.4 4.2 4.3 as operating gross margin for BOT at 60-70% is much
Net DPS (S cts) 0.0 0.0 0.0 0.0 higher than EPC’s 20-30%.
BV Per Share (S cts) 38.4 41.8 46.0 50.3
PE (X) 10.4 8.7 7.0 6.9 TP maintained at S$0.47. After the results, we have
PE Pre Ex. (X) 10.4 8.7 7.0 6.9 revised upwards our FY09/FY10 earnings by 67% and 71%
P/Cash Flow (X) 8.9 7.5 6.1 6.0 respectively to factor in better than expected results. We
EV/EBITDA (X) 8.3 6.9 7.2 6.4
Net Div Yield (%) 0.0 0.0 0.0 0.0
maintain our BUY call and TP at S$0.47.
P/Book Value (X) 0.8 0.7 0.6 0.6
Net Debt/Equity (X) 0.3 0.3 0.6 0.5 At A Glance
ROAE (%) 8.4 8.5 9.6 8.9
Issued Capital (m shrs) 428
Earnings Rev (%): - - - Mkt. Cap (S$m/US$m) 126 / 90.5
Consensus EPS (S cts): 3.5 4.3 4.3 Major Shareholders
Atorka Group (%) 17.5
ICB Industry : Utilities Max Ocean Investment (%) 14.7
ICB Sector: Gas; Water & Multiutilities KSC Close-Endedwater Fund (%) 11.7
Principal Business: One of China's most established water and Free Float (%) 40.1
wastewater treatment company in Jiangsu. Avg. Daily Vol.(‘000) 1,379
Source of all data: Company, DBS Vickers, Bloomberg

Page 50
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Refer to important disclosures at the end of this report
ed: MY / sa: JC
 Industry Focus
Asia Environment Holdings

Income Statement (RMB m) Balance Sheet (RMB m)

FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 393 625 480 485 Net Fixed Assets 32 34 34 33
Cost of Goods Sold (256) (461) (312) (292) Invts in Associates & JVs 93 92 91 88
Gross Profit 137 164 168 193 Other LT Assets 683 937 1,141 1,195
Other Opng (Exp)/Inc (39) (36) (7) (14) Cash & ST Invts 122 148 33 96
Operating Profit 98 128 161 179 Inventory 19 35 24 22
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 74 118 91 92
Associates & JV Inc (4) (5) (6) (7) Other Current Assets 510 612 612 612
Net Interest (Exp)/Inc (19) (33) (43) (58) Total Assets 1,533 1,976 2,025 2,138
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 74 91 113 115 ST Debt 151 151 151 151
Tax (16) (20) (25) (25) Other Current Liab 354 627 438 411
Minority Interest 0 0 0 0 LT Debt 174 274 424 474
Preference Dividend 0 0 0 0 Other LT Liabilities 49 49 49 49
Net Profit 59 71 88 89 Shareholder’s Equity 798 869 957 1,046
Net Profit before Except. 59 71 88 89 Minority Interests 7 6 6 6
EBITDA 100 129 161 178 Total Cap. & Liab. 1,533 1,976 2,025 2,138

Sales Gth (%) (15.2) 58.9 (23.2) 1.0 Non-Cash Wkg. Capital 249 138 288 314
EBITDA Gth (%) (7.3) 29.6 24.8 10.5 Net Cash/(Debt) (204) (277) (542) (529)
Opg Profit Gth (%) (9.3) 31.1 25.8 11.2
Net Profit Gth (%) (28.1) 20.4 24.2 1.7
Effective Tax Rate (%) 21.2 22.0 22.0 22.0
Cash Flow Statement (RMB m) Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Pre-Tax Profit 74 91 113 115 Gross Margins (%) 34.8 26.2 34.9 39.9
Dep. & Amort. 6 6 6 6 Opg Profit Margin (%) 24.8 20.5 33.5 36.9
Tax Paid (10) (14) (20) (25) Net Profit Margin (%) 15.0 11.3 18.3 18.5
Assoc. & JV Inc/(loss) 4 5 6 7 ROAE (%) 8.4 8.5 9.6 8.9
Chg in Wkg.Cap. (53) 105 (155) (26) ROA (%) 4.6 4.0 4.4 4.3
Other Operating CF (1) 0 0 0 ROCE (%) 8.0 7.9 8.5 8.4
Net Operating CF 20 192 (50) 77 Div Payout Ratio (%) 0.0 0.0 0.0 0.0
Capital Exp.(net) (2) (5) (4) (3) Net Interest Cover (x) 5.1 3.9 3.8 3.1
Other Invts.(net) (7) (7) (7) (7) Asset Turnover (x) 0.3 0.4 0.2 0.2
Invts in Assoc. & JV (3) (4) (4) (4) Debtors Turn (avg days) 80.2 56.2 79.4 68.7
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 425.0 368.0 590.4 492.1
Other Investing CF (427) (250) (200) (50) Inventory Turn (avg days) 26.1 21.9 35.2 29.3
Net Investing CF (438) (266) (215) (64) Current Ratio (x) 1.4 1.2 1.3 1.5
Div Paid (10) 0 0 0 Quick Ratio (x) 0.4 0.3 0.2 0.3
Chg in Gross Debt 247 100 150 50 Net Debt/Equity (X) 0.3 0.3 0.6 0.5
Capital Issues 137 0 0 0 Net Debt/Equity ex MI (X) 0.3 0.3 0.6 0.5
Other Financing CF (21) 0 0 0 Capex to Debt (%) 0.7 1.2 0.7 0.5
Net Financing CF 353 100 150 50 Z-Score (X) 1.0 1.0 1.2 1.2
Net Cashflow (65) 27 (115) 63 N. Cash/(Debt)PS (RMB cts) (47.9) (65.2) (127.5) (124.5)
Opg CFPS (RMB cts) 17.3 20.5 24.6 24.2
Free CFPS (RMB cts) 4.2 44.0 (12.7) 17.3
Quarterly / Interim Income Statement (RMB m) Segmental Breakdown / Key Assumptions
FY Dec 2Q2008 3Q2008 4Q2008 1Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 110 97 119 105 Revenues (RMB m)
Cost of Goods Sold (72) (61) (78) (62) EPC for external 4 80 80 80
Gross Profit 38 36 41 43 EPC for BOT 290 409 210 30
Other Oper. (Exp)/Inc (16) (20) (9) (13) Manufacturing 80 90 103 222
Operating Profit 22 16 32 30 O&M revenue 19 46 87 153
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc (1) 1 (1) (1) Total 393 625 480 485
Net Interest (Exp)/Inc 0 (1) (7) (7) Gross profit (RMB m)
Exceptional Gain/(Loss) 0 0 0 0 EPC for external N/A 18 22 22
Pre-tax Profit 21 16 24 22 EPC for BOT N/A 90 59 8
Tax (6) (4) (5) (4) Manufacturing N/A 22 26 55
Minority Interest 0 0 0 0 O&M revenue N/A 35 61 107
Net Profit 15 12 20 18
Net profit bef Except. 15 12 20 18 Total 0 164 168 193
EBITDA 23 16 31 30 Gross profit Margins (%)
EPC for external 0.0 22.0 28.0 28.0
Sales Gth (%) 67.0 (12.1) 23.1 (12.2) EPC for BOT 0.0 22.0 28.0 28.0
EBITDA Gth (%) 59.0 (27.5) 89.6 (1.5) Manufacturing 0.0 24.0 25.0 25.0
Opg Profit Gth (%) 55.3 (28.6) 104.7 (6.0) O&M revenue 0.0 75.0 70.0 70.0
Net Profit Gth (%) 26.9 (20.2) 63.5 (8.7)
Gross Margins (%) 34.4 37.1 34.3 41.1 Total 0.0 26.2 34.9 39.9
Opg Profit Margins (%) 19.9 16.1 26.8 28.7
Net Profit Margins (%) 13.7 12.4 16.5 17.2

Source: Company, DBS Vickers

Page 51
 Regional Industry Focus
Epure International Ltd
Bloomberg: EPUR SP | Reuters: EPIL.SI

BUY S$0.565 STI : 2,629.35 Still flowing well, accumulate

Price Target : 12-Month S$ 0.71 • On target to meet expectations; over RMB1b
Potential Catalyst: Contract wins, dual/re-listing, capital recycling orderbook extends visibility till 2011

Analyst • Catalysts from potential dual/re-listing, capital

Ai Teng Tan +65 6398 7967 recycling exercise
AiTeng@dbsvickers.com
• Reiterate Buy with 25% upside to TP of S$0.71
Suvro Sarkar +65 6398 7973
suvro@dbsvickers.com Growth on track. We expect Epure to meet our earnings
forecasts of RMB270m and RMB316m for FY09 and FY10
respectively as our latest check showed that projects are
Price Relative
S$
progressing smoothly. Epure would start to collect water tariffs
R e la t iv e In d e x
0 .9 0 319 from operating at least three water plants next year. O&M
0 .8 0

0 .7 0
269 revenue from these plants would be immaterial in the first two
0 .6 0 219
years of operation but it would grow to 30% of group sales
over time, forming a recurring income stream to complement
0 .5 0 169
0 .4 0
119
0 .3 0
69
the lumpy nature of its EPC business.
0 .2 0

0 .1 0
2006 2007 2008 2009
19
RMB1.4b of EPC backlog presents visibility until 2011.
E p u r e In t e r n a t io n a l L t d (L H S ) R e la t iv e S T I IN D E X (R H S )
YTD, Epure has secured RMB1,028m of EPC contracts
including RMB562m win in Saudi Arabia. We estimate that
Forecasts and Valuation
Epure’s backlog is about RMB1.4b now. We forecast that 31%
and 44% of this orderbook would be converted into EPC
FY Dec (RMB m) 2008A 2009F 2010F 2011F revenue in 2H09 and over FY10-11 respectively. Given the
Turnover 1,025 1,146 1,333 1,408 robust water demand globally, Epure’s orderbook should
EBITDA 287 313 363 383 continue to grow at a healthy pace.
Pre-tax Profit 260 292 339 359
Net Profit 232 271 316 334 Catalysts from dual/re-listing or capital recycling
Net Pft (Pre Ex.) 232 271 316 334
potential. We maintain our view that Epure is a prime
EPS (S cts) 3.7 4.3 5.0 5.3
EPS Pre Ex. (S cts) 3.7 4.3 5.0 5.3 candidate for dual/re-listing in HK/China to improve valuation
EPS Gth Pre Ex (%) 41 17 17 6 since it still trades at 30-60% discount to HK/China listed
Diluted EPS (S cts) 3.7 4.3 5.0 5.3 peers. In considering Epure’s growing BOT portfolio, we also
Net DPS (S cts) 0.8 0.9 1.0 1.1
BV Per Share (S cts) 20.8 24.3 28.4 32.7 deemed it viable for the company to set up a water trust to
PE (X) 15.4 13.2 11.3 10.7 recycle capital for long-term growth.
PE Pre Ex. (X) 15.4 13.2 11.3 10.7
P/Cash Flow (X) 15.3 13.1 11.3 10.7 Reiterate Buy. Notwithstanding solid fundamentals, Epure
EV/EBITDA (X) 9.8 8.4 6.6 5.6 was sold down with the broader market recently. We see
Net Div Yield (%) 1.4 1.5 1.8 1.9 recent price weakness as opportunity for investors to
P/Book Value (X) 2.7 2.3 2.0 1.7
Net Debt/Equity (X) CASH CASH CASH CASH accumulate the stock. Epure currently trades at 11x FY10,
ROAE (%) 18.8 19.0 19.0 17.3 making it among the cheapest water stock regionally despite
having one of the strongest track record in the sector. Our TP
Earnings Rev (%): - - -
of S$0.71 translates to mid-cycle historical average of 14x P/E.
Consensus EPS (S cts): 4.4 5.0 5.4
At A Glance
ICB Industry : Utilities Issued Capital (m shrs) 1,290
ICB Sector: Gas; Water & Multiutilities
Mkt. Cap (S$m/US$m) 729 / 522
Principal Business: Epure is a turnkey water and wastewater
treatment solution provider in the PRC Major Shareholders
Yibo Wen (%) 55.3
Source of all data: Company, DBS Vickers, Bloomberg International Finance Corp (%) 8.6
Free Float (%) 36.1
Avg. Daily Vol.(‘000) 5,303

Page 52
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Refer to important disclosures at the end of this report
ed: MY / sa: JC
 Regional Industry Focus
Epure International Ltd

Income Statement (RMB m) Balance Sheet (RMB m)

FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 1,025 1,146 1,333 1,408 Net Fixed Assets 50 51 53 54
Cost of Goods Sold (684) (780) (918) (969) Invts in Associates & JVs 3 3 5 7
Gross Profit 341 366 416 439 Other LT Assets 291 291 291 291
Other Opng (Exp)/Inc (56) (56) (57) (60) Cash & ST Invts 1,142 1,382 1,633 1,899
Operating Profit 285 310 359 379 Inventory 22 23 27 28
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 515 637 741 782
Associates & JV Inc 1 1 2 2 Other Current Assets 258 258 258 258
Net Interest (Exp)/Inc (25) (18) (21) (21) Total Assets 2,281 2,645 3,008 3,319
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 260 292 339 359 ST Debt 392 459 459 459
Tax (28) (22) (24) (25) Other Current Liab 576 652 753 794
Minority Interest 0 0 0 0 LT Debt 0 0 0 0
Preference Dividend 0 0 0 0 Other LT Liabilities 2 2 2 2
Net Profit 232 271 316 334 Shareholder’s Equity 1,312 1,532 1,794 2,065
Net Profit before Except. 232 271 316 334 Minority Interests 0 0 0 0
EBITDA 287 313 363 383 Total Cap. & Liab. 2,281 2,645 3,008 3,319

Sales Gth (%) 47.0 11.9 16.3 5.6 Non-Cash Wkg. Capital 219 266 273 275
EBITDA Gth (%) 32.0 9.0 15.9 5.5 Net Cash/(Debt) 751 923 1,174 1,440
Opg Profit Gth (%) 31.6 9.1 15.6 5.6
Net Profit Gth (%) 40.9 16.8 16.7 5.9
Effective Tax Rate (%) 10.9 7.5 7.0 7.0
Cash Flow Statement (RMB m) Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Pre-Tax Profit 260 292 339 359 Gross Margins (%) 33.3 31.9 31.2 31.2
Dep. & Amort. 2 0 0 0 Opg Profit Margin (%) 27.8 27.1 26.9 26.9
Tax Paid (28) (10) (22) (24) Net Profit Margin (%) 22.6 23.6 23.7 23.7
Assoc. & JV Inc/(loss) (1) (1) (2) (2) ROAE (%) 18.8 19.0 19.0 17.3
Chg in Wkg.Cap. 56 (58) (9) (3) ROA (%) 11.3 11.0 11.2 10.6
Other Operating CF 6 0 0 0 ROCE (%) 15.8 15.5 15.7 14.7
Net Operating CF 296 223 307 330 Div Payout Ratio (%) 21.5 20.0 20.0 20.0
Capital Exp.(net) (1) (1) (1) (1) Net Interest Cover (x) 11.3 16.8 16.9 17.8
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.5 0.5 0.5 0.4
Invts in Assoc. & JV (5) 0 0 0 Debtors Turn (avg days) 163.2 183.4 188.6 197.4
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 222.6 269.2 261.4 273.7
Other Investing CF (252) 0 0 0 Inventory Turn (avg days) 6.0 10.5 9.9 10.4
Net Investing CF (259) (1) (1) (1) Current Ratio (x) 2.0 2.1 2.2 2.4
Div Paid (44) (50) (54) (63) Quick Ratio (x) 1.7 1.8 2.0 2.1
Chg in Gross Debt 44 67 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) (0.6) (0.6) (0.7) (0.7)
Other Financing CF (25) 0 0 0 Capex to Debt (%) 0.4 0.3 0.3 0.3
Net Financing CF (25) 17 (54) (63) Z-Score (X) 3.0 3.0 3.7 3.6
Net Cashflow 12 240 251 266 N. Cash/(Debt)PS (RMB cts) 58.2 71.6 91.0 111.6
Opg CFPS (RMB cts) 18.5 21.8 24.5 25.9
Free CFPS (RMB cts) 22.8 17.2 23.7 25.5
Quarterly / Interim Income Statement (RMB m) Segmental Breakdown / Key Assumptions
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 392 267 136 303 Revenues (RMB m)
Cost of Goods Sold (255) (188) (88) (211) Municipal Wastewater 616 792 841 872
Gross Profit 137 79 48 92 Industrial Wastewater 264 219 169 165
Other Oper. (Exp)/Inc (18) (25) (5) (21) Industrial product 145 135 316 360
Operating Profit 120 53 43 71 O&M 0 0 8 10
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 0 0 0 0 Total 1,025 1,146 1,333 1,408
Net Interest (Exp)/Inc (5) (8) (5) (4) Gross Profit (RMB m)
Exceptional Gain/(Loss) 0 0 0 0 Municipal Wastewater 204 252 278 288
Pre-tax Profit 114 45 38 68 Industrial Wastewater 94 75 42 41
Tax (15) 4 3 (1) Industrial product 43 39 92 104
Minority Interest 0 0 0 0 O&M 0 0 4 6
Net Profit 99 49 41 67
Net profit bef Except. 99 49 41 67 Total 341 366 416 439
EBITDA 120 54 44 72 Gross Profit Margins (%)
Municipal Wastewater 33.1 31.8 33.0 33.0
Sales Gth (%) 63.6 (31.9) (49.0) 123.0 Industrial Wastewater 35.4 34.0 25.0 25.0
EBITDA Gth (%) 72.5 (54.8) (18.7) 63.1 Industrial product 30.0 29.2 29.0 29.0
Opg Profit Gth (%) 73.3 (55.3) (18.9) 64.4 O&M N/A N/A 55.0 55.0
Net Profit Gth (%) 90.9 (50.4) (17.3) 63.6
Gross Margins (%) 35.0 29.5 35.4 30.3 Total 33.3 31.9 31.2 31.2
Opg Profit Margins (%) 30.5 20.0 31.9 23.5 Key Assumptions
Net Profit Margins (%) 25.4 18.5 29.9 22.0 New order win 862.0 1,278.0 812.4 0.0

Source: Company, DBS Vickers

Page 53
 Regional Industry Focus
Hyflux
Bloomberg: HYF SP | Reuters: HYFL.SI

BUY S$3.03 STI : 2,629.35 Clear visibility, strong funding

• 3Q09 results outperformed slightly; margins hold
Price Target : 12-Month S$ 3.50 up on cost containment and project execution
Potential Catalyst: Contract announcement, asset divestment
• Growth momentum supported by on schedule
Analyst execution of existing projects; contract wins for
Ai Teng Tan +65 6398 7967
AiTeng@dbsvickers.com the rest of this year would be added bonus

Suvro Sarkar +65 6398 7973 • Maintain BUY, TP unchanged at S$3.50

suvro@dbsvickers.com
3Q results outperformed slightly. Hyflux reported
3Q09 bottomline of S$18m (+5%y-o-y, -30%q-o-q). If
Price Relative excluding S$3.2m of forex losses, core profit would be
S$21m, slightly above our S$19m forecast. Sales of were
S$ R e la t iv e In d e x
4 .1 0 222

3 .6 0
202
182
largely driven by MENA (64% of sales; 3Q08: 38%). In
3 .1 0 162 particular, Tlemcen has reached testing & commissioning
stage while 10-15% of Magtaa’s contract has been
142
2 .6 0
122
2 .1 0 102
82
recognized so far. Gross margin of 35% was higher y-o-
y due to active cost and project management.
1 .6 0
62
1 .1 0 42
2005 2006 2007 2008 2009

H y f lu x (L H S ) R e la t iv e S T I IN D E X (R H S )
Growth outlook remains positive. Growth outlook
remains positive, backed by c. S$818m of EPC backlog
and c. S$694m of BOT assets. This is excluding the
Forecasts and Valuation
potential S$1.1bn worth of projects from Libya pending
FY Dec (S$ m) 2008A 2009F 2010F 2011F finalization and financial close. When these are officially
Turnover 554 488 559 587 awarded by early 2010, earnings visibility will extend to
EBITDA 86 95 111 114 2013. Meanwhile, Hyflux is currently awaiting results of
Pre-tax Profit 70 80 92 95 bids submitted for a PUB project in Singapore and a
Net Profit 59 68 77 80
Net Pft (Pre Ex.) 59 68 77 80
desalination project (100K cu m/day capacity) in India,
EPS (S cts) 11.0 12.6 14.4 14.9 which market watchers believe results will be made
EPS Pre Ex. (S cts) 11.0 12.6 14.4 14.9 known by end 09 or early 10.
EPS Gth Pre Ex (%) 74 15 15 4
Diluted EPS (S cts) 11.0 12.6 14.4 14.9 Hyflux’s financial backing has grown stronger
Net DPS (S cts) 3.4 3.4 3.4 3.4 especially after its collaboration with the Japan Bank for
BV Per Share (S cts) 55.4 64.5 75.5 87.0
PE (X) 27.6 24.1 21.0 20.3 International Co-operation (“JBIC”). We believe Hyflux
PE Pre Ex. (X) 27.6 24.1 21.0 20.3 would also benefit by having a critical mass of water
P/Cash Flow (X) 23.2 20.7 18.6 18.4 plants by next year, ready for divestment. It helps that
EV/EBITDA (X) 21.1 20.1 17.6 17.5
HWT – with a lower cost of capital following the market
Net Div Yield (%) 1.1 1.1 1.1 1.1
P/Book Value (X) 5.5 4.7 4.0 3.5 recovery – is now in a better position to acquire yield
Net Debt/Equity (X) 0.5 0.7 0.7 0.7 accretive projects. Divestments, if any, could provide an
ROAE (%) 22.0 21.0 20.6 18.4 instant lift to earnings in 2010.
Earnings Rev (%): - - -
Consensus EPS (S cts): 13.1 14.8 18.2
At A Glance
ICB Industry : Utilities Issued Capital (m shrs) 527
ICB Sector: Gas; Water & Multiutilities
Mkt. Cap (S$m/US$m) 1,596 / 1,144
Principal Business: An integrated water and liquid treatment
company specializing in membrane technologies. Major Shareholders
Ooi Lin Lum (%) 33.8
Source of all data: Company, DBS Vickers, Bloomberg Free Float (%) 66.2
Avg. Daily Vol.(‘000) 1,585

Page 54
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ed: MY / sa: JC
 Regional Industry Focus
Hyflux

Income Statement (S$ m) Balance Sheet (S$ m)

FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Turnover 554 488 559 587 Net Fixed Assets 57 47 39 32

Cost of Goods Sold (384) (309) (353) (367) Invts in Associates & JVs 95 93 92 91
Gross Profit 170 179 206 221 Other LT Assets 311 391 511 631
Other Opng (Exp)/Inc (93) (93) (102) (112) Cash & ST Invts 91 44 58 65
Operating Profit 77 86 104 108 Inventory 34 27 31 32
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 41 36 41 43
Associates & JV Inc (1) (1) (1) (1) Other Current Assets 219 219 219 219
Net Interest (Exp)/Inc (5) (5) (11) (12) Total Assets 847 857 990 1,112
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 70 80 92 95 ST Debt 50 50 50 50
Tax (8) (9) (10) (10) Other Current Liab 274 182 202 208
Minority Interest (3) (4) (4) (4) LT Debt 208 258 308 358
Preference Dividend 0 0 0 0 Other LT Liabilities 6 6 6 6
Net Profit 59 68 77 80 Shareholder’s Equity 298 347 406 468
Net Profit before Except. 59 68 77 80 Minority Interests 10 14 18 22
EBITDA 86 95 111 114 Total Cap. & Liab. 847 857 990 1,112

Sales Gth (%) 187.5 (11.9) 14.4 5.1 Non-Cash Wkg. Capital 19 99 89 87
EBITDA Gth (%) 63.8 10.8 16.9 3.1 Net Cash/(Debt) (167) (264) (301) (343)
Opg Profit Gth (%) 113.0 11.4 20.0 4.7
Net Profit Gth (%) 79.2 14.5 14.6 3.6
Effective Tax Rate (%) 11.6 11.0 11.0 11.0
Cash Flow Statement (S$ m) Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Pre-Tax Profit 70 80 92 95 Gross Margins (%) 30.7 36.7 36.8 37.6

Dep. & Amort. 10 10 8 7 Opg Profit Margin (%) 14.0 17.7 18.5 18.5
Tax Paid (1) (6) (9) (10) Net Profit Margin (%) 10.7 13.8 13.9 13.7
Assoc. & JV Inc/(loss) 1 1 1 1 ROAE (%) 22.0 21.0 20.6 18.4
Chg in Wkg.Cap. (67) (83) 9 2 ROA (%) 8.5 7.9 8.4 7.6
Other Operating CF 17 0 0 0 ROCE (%) 13.4 12.3 12.6 11.4
Net Operating CF 30 2 102 96 Div Payout Ratio (%) 31.2 27.3 23.8 23.0
Capital Exp.(net) (19) 0 0 0 Net Interest Cover (x) 14.2 17.1 9.8 8.9
Other Invts.(net) (75) (80) (120) (120) Asset Turnover (x) 0.8 0.6 0.6 0.6
Invts in Assoc. & JV (6) 0 0 0 Debtors Turn (avg days) 28.7 28.8 25.3 26.4
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 131.5 203.7 136.4 143.0
Other Investing CF 8 0 0 0 Inventory Turn (avg days) 26.6 37.1 30.8 32.3
Net Investing CF (92) (80) (120) (120) Current Ratio (x) 1.2 1.4 1.4 1.4
Div Paid (10) (18) (18) (18) Quick Ratio (x) 0.4 0.3 0.4 0.4
Chg in Gross Debt 51 50 50 50 Net Debt/Equity (X) 0.5 0.7 0.7 0.7
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) 0.6 0.8 0.7 0.7
Other Financing CF (9) 0 0 0 Capex to Debt (%) 7.3 0.0 0.0 0.0
Net Financing CF 32 32 32 32 Z-Score (X) 2.2 2.2 3.3 3.1
Net Cashflow (30) (46) 13 7 N. Cash/(Debt)PS (S cts) (31.1) (49.1) (55.9) (63.9)
Opg CFPS (S cts) 18.1 15.9 17.3 17.4
Free CFPS (S cts) 2.1 0.4 18.9 17.8
Quarterly / Interim Income Statement (S$ m) Segmental Breakdown / Key Assumptions
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009 FY Dec 2008A 2009F 2010F 2011F

Turnover 179 88 134 127 Revenues (S$ m)

Cost of Goods Sold (131) (59) (71) (81) Municipal 467 416 476 496
Gross Profit 48 29 64 45 Industrial 76 69 79 87
Other Oper. (Exp)/Inc (31) (19) (35) (25) O&M/ Trustee Management 1 3 4 4
Operating Profit 17 11 29 20 Divestment Gains 10 N/A N/A N/A
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc (1) (1) 2 1 Total 554 488 559 587
Net Interest (Exp)/Inc (2) (3) (2) (2) Operating Profit (S$ m)
Exceptional Gain/(Loss) 0 0 0 0 Municipal 63 79 95 99
Pre-tax Profit 15 7 29 19 Industrial 1 7 8 9
Tax (1) (2) (2) (1) O&M/ Trustee Management 0 0 0 0
Minority Interest 0 0 (1) 0
Net Profit 13 5 26 18
Net profit bef Except. 13 5 26 18 Total 77 86 104 108
EBITDA 19 12 33 24 Operating Pft Margins (%)
Municipal 13.6 19.0 20.0 20.0
Sales Gth (%) 1.0 (50.8) 52.4 (5.9) Industrial 1.0 10.0 10.0 10.0
EBITDA Gth (%) (28.2) (36.6) 169.0 (27.2) O&M/ Trustee Management 0.0 10.0 12.0 12.0
Opg Profit Gth (%) (31.6) (37.7) 170.7 (30.6)
Net Profit Gth (%) (22.6) (61.7) 403.7 (29.9)
Gross Margins (%) 27.0 33.2 47.6 35.8 Total 14.0 17.7 18.5 18.5
Opg Profit Margins (%) 9.6 12.1 21.5 15.8 Key Assumptions
Net Profit Margins (%) 7.5 5.8 19.2 14.3 New order wins 817.9 1,174.5 250.0 250.0

Source: Company, DBS Vickers

Page 55
 Regional Industry Focus
Hyflux Water Trust
Bloomberg: HYFT SP | Reuters: HYWT.SI

HOLD S$0.665 STI : 2,629.35 Growth story takes a breather

• 1H09 payout of 2.56Scts was in line with guidance,
Price Target : 12-Month S$ 0.65 after sponsor waived 31% of entitlement
Potential Catalyst: xxx
• But growth prospects in industrial parks have
Analyst failed to materialize to extent previously visualised
Ai Teng Tan +65 6398 7967
AiTeng@dbsvickers.com • Hence, potential downside risks to FY10 DPU in the
Suvro Sarkar +65 6398 7973 absence of any waiver agreements with sponsor
suvro@dbsvickers.com
• Maintain HOLD, TP unchanged at S$0.65
Volumes were flat in 1H09. 2Q09 distributable cash
Price Relative
S$ R e la t iv e In d e x
was largely flat q-o-q at S$3.5m, as tariff receipts rose
1 .0 0 219 only 3% q-o-q from S$6.7m in 1Q09 to S$6.9m in 2Q09.
0 .9 0
169
Total volume throughput increased only very marginally
0 .8 0

0 .7 0
to 234,000 cum/day in 2Q09 (vs. 226,000 cum/day in
0 .6 0
119
1Q09) – implying an utilisation rate of 44% – and no new
0 .5 0
69 capacity came online during the quarter.
0 .4 0

0 .3 0
N o v -0 7 M a y -0 8 N o v -0 8 M a y -0 9
19
2H09 DPU of 2.86Scts looks secured, with waivers.
H y f lu x W a t e r T r u s t (L H S ) R e la t iv e S T I IN D E X ( R H S ) Without waiver, 1H09 DPU would have amounted to
2.33Scts, or about 9% short of projection. The 2.56Scts
Forecasts and Valuation DPU paid to ordinary unit-holders in 1H09 was arrived at
after payment of management fees in units and a 31%
FY Dec (S$ m) 2008A 2009F 2010F 2011F DPU waiver from sponsor Hyflux. For 2H09, we expect
Gross Revenue 54 34 35 40 DPU (before waiver) of about 2.50Scts; hence Hyflux may
Net Operating Inc 8 12 16 19 have to waive about 40% of its entitlements in 2H09.
Total Return 10 9 8 11
Distribution Inc 10 14 17 21 But no guarantees on FY10 DPU. While there is some
EPU (S cts) 3.4 3.0 2.6 3.6
EPU Gth (%) N/A (12) (14) 37
likely upside from higher tariffs in expanded/ enhanced
DPU (S cts) 5.0 5.4 5.0 6.3 facilities, the industrial parks growth story envisaged
DPU Gth (%) N/A 9 (9) 28 earlier is not likely to materialize in the near term. Though
PE (X) 19.4 22.0 25.5 18.6 most existing industries continue to operate, construction
Distribution Yield (%) 7.5 8.2 7.5 9.5
Aggregate Leverage (%) 20.0 27.0 27.8 28.7 of new units have been pushed back. Thus, we expect
ROAE (%) 4.3 3.8 3.4 4.8 the ramp up in volumes to be much slower than
previously expected. Having outperformed the index by
about 40% YTD, the stock is now trading at 8.2% FY09
and 7.5% FY10 yield, and we believe upside is limited at
current valuations. Maintain HOLD, TP S$0.65. Further
Distn. Inc Chng (%): 59.0 112.1 98.1 acquisitions are unlikely for the rest of FY09.
Consensus DPU (S cts): 5.1 5.2 4.6
At A Glance
ICB Industry : Financials
Issued Capital (m shrs) 301
ICB Sector: Equity Investment Instruments
Mkt. Cap (S$m/US$m) 200 / 143
Principal Business: First pure play global water business trust with an
objective to invest in water-related infrastructure assets Major Shareholders
Hyflux Water Projects (%) 31.4
Source of all data: Company, DBS Vickers, Bloomberg Schroder Investment SISF (%) 6.7
Capital Group Company (%) 4.9
Free Float (%) 52.3
Avg. Daily Vol.(‘000) 495

Page 56
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Refer to important disclosures at the end of this report
ed: MY / sa: JC
 Regional Industry Focus
Hyflux Water Trust

Statement of Total Return (S$ m) Balance Sheet (S$ m)

FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Gross revenue 54 34 35 40 Financial Assets 145 145 141 137

Operating expenses (46) (22) (19) (21) Other LT Assets 146 181 175 169
Net Operating Income 8 12 16 19 Cash & ST Invts 36 8 12 13
Other Operating expenses (1) (2) (2) (3) Inventory 3 3 3 3
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 26 8 9 10
Net Interest (Exp)/Inc 2 (1) (4) (4) Other Current Assets 1 1 1 1
Exceptional Gain/(Loss) 2 1 0 0 Total Assets 357 347 341 334
Pretax Income 10 10 9 13
Tax 0 (1) (1) (2) ST Debt 0 0 0 0
Minority Interest 0 0 0 0 Other Current Liabilities 41 7 8 10
Preference Dividend 0 0 0 0 LT Debt 58 88 88 88
Net Income After Tax 10 9 8 11 Other LT Liabilities 17 16 15 13
Total Return 10 9 8 11 Unit holders’ funds 240 236 230 222
Non-tax deductible Items 0 5 9 11 Minority Interests 0 0 0 0
Net Inc available for Dist. 10 14 17 21 Total Funds & Liabilities 357 347 341 334

Revenue Gth (%) N/A (37.2) 2.2 15.5 Non-Cash Wkg. Capital (11) 5 4 4
N Operating Inc Gth (%) N/A 56.4 29.6 22.8 Net Cash/(Debt) (23) (80) (77) (75)
Net Inc Gth (%) N/A (11.9) (13.3) 37.9
Dist. Payout Ratio (%) 100.0 100.0 90.0 90.0

Cash Flow Statement (S$ m) Rates & Ratio

FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Pre-Tax Income 10 10 9 13 Net Operating Margins (%) 14.3 35.7 45.2 48.1
Dep. & Amort. 2 3 6 6 Net Income Margins (%) 19.1 26.8 22.7 27.1
Tax Paid 0 0 (2) (3) Dist to revenue (%) 18.9 42.6 48.1 53.7
Associates &JV Inc/(Loss) 0 0 0 0 Managers & Trustee’s fees 2.0 4.9 6.8 6.4
Chg in Wkg.Cap. (12) (18) 0 0 to sales (%)
Other Operating CF (44) 0 0 0 ROAE (%) 4.3 3.8 3.4 4.8
Net Operating CF (44) (5) 13 16 ROA (%) 2.9 2.6 2.3 3.2
Net Invt in Assets (44) (39) 0 0 ROCE (%) 2.1 3.0 3.4 4.3
Other Invts (net) 0 0 4 4 Int. Cover (x) NM 7.1 3.3 4.2
Invts in Assoc. & JV 0 0 0 0 Current Ratio (x) 1.6 2.8 2.9 2.8
Div from Assoc. & JVs 0 0 0 0 Quick ratio (x) 1.5 2.3 2.4 2.4
Other Investing CF 0 0 0 0 Aggregate Leverage (%) 20.0 27.0 27.8 28.7
Net Investing CF (44) (39) 4 4 Z-Score (X) 1.1 1.1 1.3 1.4
Distribution Paid (4) (14) (15) (19) Operating CFPS (S cts) (10.7) 4.2 4.4 5.3
Chg in Gross Debt 59 30 0 0 Free CFPS (S cts) (29.6) (14.6) 4.4 5.2
New units issued (4) 1 1 1
Other Financing CF 0 0 0 0
Net Financing CF 51 16 (14) (18)
Net Cashflow (38) (27) 3 2
Quarterly / Interim Income Statement (S$ m) P/Book Value (x)
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009
1.1
Gross revenue 14 9 14 7
Operating expenses (12) (7) (11) (4) 1.0
Net Operating Income 2 2 3 3
Other Operating expenses 0 0 0 0 0.9
Other Non Opg (Exp)/Inc 0 2 4 (3)
Net Interest (Exp)/Inc 2 0 0 0 0.8
Exceptional Gain/(Loss) 0 0 0 0
Net Income 3 4 6 (1) 0.7
Tax 0 0 0 0
Minority Interest 0 0 0 0
0.6
Net Income after Tax 3 4 6 (1)
Total Return 0 0 0 0
Non-tax deductible Items 0 (1) (3) 5 0.5
Net Inc available for Dist. 3 3 3 4
0.4
Revenue Gth (%) (16) (35) 56 (53)
N Operating Inc Gth (%) (4) 15 25 (8) 0.3
Net Inc Gth (%) 47 19 65 (119) Jan-08 Jun-08 Nov-08 Apr-09 Sep-09
Net Operating Inc Margin (%) 14.8 26.2 21.0 41.0
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0

Source: Company, DBS Vickers

Page 57
 Regional Industry Focus
Thai Tap Water Supply
Bloomberg: TTW TB | Reuters: TTW.BK

BUY Bt4.20 SET : 681.91 Solid growth on track

Price Target : 12-Month Bt 5.93 • Attractive earnings growth supported by moderate
Potential Catalyst: Resilient earnings growth
top line growth and falling interest expenses
• Stable operation with high margins. Economic
Analyst recovery should support demand growth and CPI.
Vichitr Kuladejkhuna CFA +66 0 26577826
• Maintain Buy with 41% upside to Bt5.93 TP.
vichitrk@th.dbsvickers.com

Low risk, high margins, attractive growth. TTW

operates under long-term water purchase agreements
with minimum offtake quantities and automatic annual
Price Relative water tariff adjustments that are linked to the CPI.
Bt Relative Index Operating margins are strong and stable at 59%, while
6 . 30 269
earnings should grow at 15% CAGR over 2008-11.
5 . 80
219
5 . 30

4 . 80
169
Near term organic growth. Volume will be driven by
4 . 30
119
demand growth in existing service areas and supported
3 . 80 69
by government policy to reduce ground water use.
3 . 30
May - 08 Oct - 08 Mar - 09 Aug - 09
19
Management has long term plans to enter the
Thai Tap Water Supply ( LHS ) Relative SET INDEX ( RHS ) wastewater management business and expand abroad.

Overhang largely priced in. The investigation into the

Forecasts and Valuation
Provincial Waterworks Authority’s water purchase
FY Dec (Bt m) 2008A 2009F 2010F 2011F agreement with TTW is unlikely to have a conclusive
Turnover 3,605 4,044 4,284 4,554 ending soon, but the issue might fade away. Hence, we
EBITDA 2,845 3,159 3,344 3,549 could still see an overhang. Nonetheless, we remain
Pre-tax Profit 1,370 1,732 2,080 2,258 positive about TTW’s strong fundamentals, low risk, and
Net Profit 1,359 1,522 1,883 2,053
Net Pft (Pre Ex.) 1,359 1,522 1,883 2,053 stable earnings growth. Prospects for an economic
EPS (Bt) 0.4 0.4 0.5 0.5 recovery should improve demand for tap water and
EPS Pre Ex. (Bt) 0.4 0.4 0.5 0.5 accelerate CPI going forward, while the overhang should
EPS Gth Pre Ex (%) 30 4 24 9
Diluted EPS (Bt) 0.4 0.4 0.5 0.5
have been priced in. Maintain Buy and DCF-based target
Net DPS (Bt) 0.2 0.2 0.3 0.3 price of Bt5.93.
BV Per Share (Bt) 2.1 2.3 2.5 2.8
PE (X) 11.4 11.0 8.9 8.2 At A Glance
PE Pre Ex. (X) 11.4 11.0 8.9 8.2
Issued Capital (m shrs) 3,990
P/Cash Flow (X) 7.3 7.3 6.2 5.8
EV/EBITDA (X) 8.2 7.8 7.1 6.3 Mkt. Cap (Btm/US$m) 16,758 / 502
Net Div Yield (%) 4.5 5.4 6.7 7.4 Major Shareholders
P/Book Value (X) 2.0 1.8 1.7 1.5 Ch. Karnchang (%) 33.7
Net Debt/Equity (X) 0.9 0.9 0.7 0.5 Mitsui & Co (%) 25.9
ROAE (%) 20.9 17.5 19.7 19.5 Bangkok Expressway (%) 9.2
Free Float (%) 28.9
Earnings Rev (%): - - -
Consensus EPS (Bt): 0.4 0.5 0.5 Avg. Daily Vol.(‘000) 16,778

ICB Industry : Utilities

ICB Sector: Gas; Water & Multiutilities
Principal Business: Thailand's largest private tap water supplier.

Source of all data: Company, DBS Vickers, Bloomberg

Page 58
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Refer to important disclosures at the end of this report
ed: GC / CS
 Regional Industry Focus
Thai Tap Water Supply

Income Statement (Bt m) Balance Sheet (Bt m)

FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 3,605 4,044 4,284 4,554 Net Fixed Assets 13,060 14,133 14,379 13,989
Cost of Goods Sold (1,177) (1,246) (1,354) (1,420) Invts in Associates & JVs 0 0 0 0
Gross Profit 2,428 2,798 2,931 3,134 Other LT Assets 2,894 2,698 2,503 2,307
Other Opng (Exp)/Inc (364) (411) (386) (406) Cash & ST Invts 1,408 2,933 3,980 5,493
Operating Profit 2,065 2,387 2,544 2,728 Inventory 18 17 19 19
Other Non Opg (Exp)/Inc 3 0 0 0 Debtors 347 364 386 410
Associates & JV Inc 0 0 0 0 Other Current Assets 168 72 72 72
Net Interest (Exp)/Inc (698) (655) (465) (470) Total Assets 17,895 20,217 21,337 22,290
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 1,370 1,732 2,080 2,258 ST Debt 1,104 260 290 3,810
Tax (2) (203) (189) (196) Other Current Liab 249 284 301 312
Minority Interest (9) (7) (8) (8) LT Debt 8,205 10,555 10,650 7,140
Preference Dividend 0 0 0 0 Other LT Liabilities 0 0 0 0
Net Profit 1,359 1,522 1,883 2,053 Shareholder’s Equity 8,310 9,085 10,055 10,978
Net Profit before Except. 1,359 1,522 1,883 2,053 Minority Interests 26 34 42 50
EBITDA 2,845 3,159 3,344 3,549 Total Cap. & Liab. 17,895 20,217 21,337 22,290

Sales Gth (%) 39.2 12.2 5.9 6.3 Non-Cash Wkg. Capital 284 169 175 189
EBITDA Gth (%) 38.6 11.0 5.8 6.1 Net Cash/(Debt) (7,902) (7,882) (6,960) (5,457)
Opg Profit Gth (%) 32.2 15.6 6.6 7.2
Net Profit Gth (%) 47.7 12.0 23.7 9.0
Effective Tax Rate (%) 0.2 11.7 9.1 8.7
Cash Flow Statement (Bt m) Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Pre-Tax Profit 1,370 1,732 2,080 2,258 Gross Margins (%) 67.4 69.2 68.4 68.8
Dep. & Amort. 778 773 799 821 Opg Profit Margin (%) 57.3 59.0 59.4 59.9
Tax Paid (2) (203) (189) (196) Net Profit Margin (%) 37.7 37.6 44.0 45.1
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 20.9 17.5 19.7 19.5
Chg in Wkg.Cap. 0 115 (6) (15) ROA (%) 7.4 8.0 9.1 9.4
Other Operating CF 551 569 481 495 ROCE (%) 11.4 11.2 11.3 11.6
Net Operating CF 2,696 2,986 3,165 3,363 Div Payout Ratio (%) 55.0 60.0 60.0 60.0
Capital Exp.(net) (135) (1,554) (850) (235) Net Interest Cover (x) 3.0 3.6 5.5 5.8
Other Invts.(net) 445 (500) 0 0 Asset Turnover (x) 0.2 0.2 0.2 0.2
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 32.4 32.1 31.9 31.9
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 162.2 137.3 135.9 134.2
Other Investing CF (104) 0 0 0 Inventory Turn (avg days) 14.8 13.6 11.7 11.6
Net Investing CF 206 (2,054) (850) (235) Current Ratio (x) 1.4 6.2 7.5 1.5
Div Paid (599) (747) (913) (1,130) Quick Ratio (x) 1.3 6.1 7.4 1.4
Chg in Gross Debt (4,368) 1,505 125 10 Net Debt/Equity (X) 0.9 0.9 0.7 0.5
Capital Issues 2,855 0 0 0 Net Debt/Equity ex MI (X) 1.0 0.9 0.7 0.5
Other Financing CF (717) (665) (481) (495) Capex to Debt (%) 1.5 14.4 7.8 2.1
Net Financing CF (2,829) 93 (1,269) (1,615) Z-Score (X) 1.8 1.8 1.8 1.9
Net Cashflow 74 1,025 1,046 1,513 N. Cash/(Debt)PS (Bt) (2.0) (2.0) (1.7) (1.4)
Opg CFPS (Bt) 0.7 0.7 0.8 0.8
Free CFPS (Bt) 0.7 0.4 0.6 0.8
Quarterly / Interim Income Statement (Bt m) Key Assumptions
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 959 953 1,008 1,032 Key Assumptions
Cost of Goods Sold (310) (302) (282) (295) Total water supply, m3/day 608,968 626,919 659,190 683,056
Gross Profit 649 651 726 736 Avg. water tariff, Bt/m3 16.0 17.4 17.5 17.8
Other Oper. (Exp)/Inc (84) (90) (99) (87) Central region CPI - Dec 1.0% 3.5% 2.5% 2.5%
Operating Profit 566 561 627 650 General CPI - Jul 9.2% -4.4% 2.5% 2.5%
Other Non Opg (Exp)/Inc 1 0 1 0
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc (177) (253) (106) (121)
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 389 309 522 529
Tax 2 0 (123) (41)
Minority Interest (2) (3) (1) (3)
Net Profit 390 306 398 485
Net profit bef Except. 390 306 398 485
EBITDA 770 751 825 856

Sales Gth (%) 3.2 (0.6) 5.8 2.3

EBITDA Gth (%) 8.0 (2.5) 9.9 3.8
Opg Profit Gth (%) 10.1 (0.8) 11.8 3.6
Net Profit Gth (%) 8.8 (21.5) 30.2 21.8
Gross Margins (%) 67.7 68.3 72.0 71.4
Opg Profit Margins (%) 59.0 58.9 62.2 63.0
Net Profit Margins (%) 40.6 32.1 39.5 47.0

Source: Company, DBS Vickers

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 Regional Industry Focus

Water Sector

Research Team Directory

Analyst Sector E-mail

Regional
Timothy Wong Head, Group Research timothywongkc@dbsvickers.com
Joanne Goh Regional Equity Strategist joannegohsc@dbs.com
Paul Yong, CFA Singapore & China Industrial & Transport paulyong@dbsvickers.com
Ben Santoso Regional Plantation bensantoso@dbsvickers.com
Lim Sue Lin Singapore and Malaysia Banking suelin@hwangdbsvickers.com.my
June Ng China and Malaysia Power june@hwangdbsvickers.com.my

Hong Kong / China

Derek Cheung Head of Research, Strategy derek_cheung@hk.dbsvickers.com
Alice Hui CFA Deputy HOR, Consumer alice_hui@hk.dbsvickers.com
Gideon Lo CFA Deputy HOR, Oil & Petrochemicals, gideon_lo@hk.dbsvickers.com
Pharmaceuticals, Shipping
Carol Wu China Property carol_wu@hk.dbsvickers.com
Dennis Lam Electronics & Technology dennis_lam@hk.dbsvickers.com
Helen Wang Basic Materials helen_wang@hk.dbsvickers.com
Jasmine Lai Banking & Finance jasmine_lai@hk.dbsvickers.com
Jeff Yau CFA Hong Kong Property jeff_yau@hk.dbsvickers.com
Mavis Hui Media & General Retail mavis_hui@hk.dbsvickers.com
Patricia Yeung Industrials patricia_yeung@hk.dbsvickers.com
Rachel Miu Infrastructure, Machinery, Agriculture Rachel_miu@hk.dbsvickers.com
Steven Liu CFA Software & Telecom steven_liu@hk.dbsvickers.com

Indonesia
Agus Pramono, CFA Strategy, Banking, Conglomerate/Automotive, Cement agus.pramono@id.dbsvickers.com
Yusuf Ade Winoto, CFA Basic Materials, Oil, Gas & Energy, Construction yusuf.winoto@id.dbsvickers.com
Research Team Telecommunications, Plantation, Consumer research@id.dbsvickers.com

Malaysia
Wong Ming Tek Head of Research, Strategy mingtek@hwangdbsvickers.com.my
Goh Yin Foo, CFA Retail/ Technical Product yinfoo@hwangdbsvickers.com.my
June Ng Power, Oil & Gas, Conglomerates, REITs june@hwangdbsvickers.com.my
Lim Sue Lin Financial Services suelin@hwangdbsvickers.com.my
Yee Mei Hui Gaming, Property meihui@hwangdbsvickers.com.my
Juliana Ramli Aviation, Transport, Plantation juliana@hwang.dbsvickers.com.my
Chong Tjen-San, CFA Construction, Infrastructure tjensan@hwangdbsvickers.com.my
Kok Chiew Sia Consumer chiewsia@hwangdbsvickers.com.my
Lee Wee Keat Oil & Gas, IPO weekeat@hwangdbsvickers.com.my
Research Team Small-Mid Caps general@hwangdbsvickers.com.my
Telecommunications, Motor
Steel, Manufacturing, Other Financial Services
Building materials

Singapore
Janice Chua Head of Research, Strategy, Industrials janicechua@dbsvickers.com
Chong Wee Lee, CFA Industrials weelee@dbsvickers.com
Ho Pei Hwa Industrials peihwa@dbsvickers.com
Lock Mun Yee Property, Reits mumyee@dbsvickers.com
Adrian Chua Property adrianchua@dbsvickers.com
Derek Tan Reits derektan@dbsvickers.com
Jeremy Thia Industrials, Property jeremythia@dbsvickers.com
Andy Sim, CFA Consumer andysim@dbsvickers.com
Patrick Xu Consumer patrickxu@dbsvickers.com
Tan Ai Teng Electronics aiteng@dbsvickers.com
Sachin Mittal Telecom sachin@dbsvickers.com
Suvro Sarkar Electronics, Industrials survo@dbsvickers.com

Thailand
Chanpen Sirithanarattanakul Head of Research chanpens@th.dbsvickers.com
Strategy, Property, REITs, Transportation
Chirasit Vuttigrai Strategy, Telecom, Media chirasitv@th.dbsvickers.com
Vichitr Kuladejkhuna CFA Building Materials, Energy, Utilities, vichitrk@th.dbsvickers.com
Petrochemicals, Chemicals
Sugittra Kongkhajornkidsuk Banks, Securities sugittrak@th.dbsvickers.com
Parin Kitchatornpitak Automotive, Commerce, Electronics parink@th.dbsvickers.com
Nalyne Viriyasathien Construction Materials, Food and Beverage, nalynev@th.dbsvickers.com

Korea
Lee Eun Young Basic Materials, Utilities eunyoung@dbsvickers.com
Jung Sung Hoon Consumer sunghoon@dbsvickers.com
Jay (Jaehak) Kim Automotive Jay_kim@hk.dbsvickers.com

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd
(“DBSVR”), are to contact DBSVR at +65 6398 7954 in respect of any matters arising from
or in connection with this report.”
Regional Industry Focus
Water Sector

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10 to +15% total return over the next 12 months for small caps, -10 to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson
(www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg
(DBSR GO). For access, please contact your DBSV salesperson.

GENERAL DISCLOSURE/DISCLAIMER
This document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers
Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH").
[This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any
form by any means or (ii) redistributed without the prior written consent of DBSVR.]

The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as
to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for
general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial
situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken

Stock Profiles
in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liability
whatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to this
document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-
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employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform
broking, investment banking and other banking services for these companies.

The assumptions for commodities in this report are for the purpose of forecasting earnings of the companies mentioned herein. They are
not to be construed as recommendations to trade in the physical commodities or in futures contracts relating to the commodities
mentioned in this report.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction
as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification
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ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of
his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of
10 November 2009, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in
the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the mentioned
company as of 06 November 2009.
2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered
broker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the company
mentioned as of 10 November 2009.
3. Compensation for investment banking services:
i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12
months, and within the next 3 months may have have receive or intends to seek compensation for investment
banking services from Epure International and Hyflux.
ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in any
investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to
obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any
security discussed in this document should contact DBSVUSA exclusively.

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 Regional Industry Focus
Water Sector

RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or
resident of or located in any locality, state, country or other jurisdiction where such distribution, publication,
availability or use would be contrary to law or regulation.

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provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [“MAS”]
under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for
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Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and
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by the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No.
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report produced by a foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to
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arrangements under Paragraph 11 of the First Schedule to the FAA.

United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the
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qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such
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DBS Vickers Research (Singapore) Pte Ltd – 8 Cross Street, #02-01 PWC Building, Singapore 048424
Tel. 65-6533 9688, Fax: 65-6226 8048
Company Regn. No. 198600295W

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Regional Industry Focus
Water Sector

Asian Equities Sales, Sales Trading and Research Contacts

Sales Heads Tel: Email:

Singapore Chai Szue Yin 65-6398 7319 szueyin@dbsvickers.com

Hong Kong Andrew Au 852-2820 4992 andrew_au@hk.dbsvickers.com
London Graham Booth 44-20-7618 1881 graham.booth@uk.dbsvickers.com
New York Robert Koh 1-212-826 3553 robertkoh@us.dbsvickers.com
Thailand Tasamol Witayanukusl 662-657 7000 tasamolweth@th.dbsvickers.com
Indonesia Irwan Junus 6221-3983 2668 irwan.junus@id.dbsvickers.com

Sales Trading Contacts Tel: Email:

Singapore Loh Chong Jin 65-6398 7304 chongjin@dbsvickers.com

Hong Kong Franco Law 852-2971 1828 franco_law@hk.dbsvickers.com
London Charles Davies 44 20 7618 1883 charles.davies@uk.dbsvickers.com
New York Brenda Wong 1 212 826 3558 brandawong@us.dbsvickers.com

Research Contacts Tel: Email:

Regional Timothy Wong 65-6398 7952 timothywongkc@dbsvickers.com

Singapore Janice Chua 65-6398 7954 janicechua@dbsvickers.com
Hong Kong Derek Cheung 852-2971 1703 derek_cheung@hk.dbsvickers.com
Malaysia Wong Ming Tek 603-2711 0956 mingtek@hwangdbsvickers.com.my
Thailand Chanpen Sirithanarattanakul 662-657 7824 chanpens@th.dbsvickers.com
Indonesia Agus Pramono 6221-3983 2668 agus.pramono@id.dbsvickers.com

DBS Vickers Securities – Regional Offices

HONG KONG MALAYSIA SINGAPORE

DBS Vickers (Hong Kong) Ltd Hwang-DBS Vickers Research Sdn Bhd DBS Vickers Securities (Singapore) Pte Ltd
18th Floor Man Yee Building Suite 26.03, 26Floor Menara Keck Seng 8 Cross Street #02-00
68 Des Voeux Road Central 203 Jalan Bukit Bintang PWC Building
Central, Hong Kong 55100 Kuala Lumpur Singapore 048424
Tel: 852-2820 4888 Tel: 60-3-2711 2222 Tel: 65-6533 9688
Fax: 852-2868 1523 Fax: 60-3-2711 2333 Fax: 65-6226 8048
Participant of The Stock Exchange
of Hong Kong Limited

INDONESIA THAILAND
PT DBS Vickers Securities (Indonesia) DBS Vickers Securities (Thailand) Co Ltd
Plaza Permata, Top Floor 15th Floor Siam Tower
Jl. M.H. Thamrin Kav. 57 989 Rama 1 Road
Jakarta 10350 Pathumwan, Bangkok 10330
Tel: 62-21-3983 2668 Tel: 66-2-658 1222
Fax: 62-21-3983 2669 Fax: 66-2-658 1269

UNITED STATES UNITED KINGDOM

DBS Vickers Securities (USA) Inc DBS Vickers Securities (UK) Ltd
805 Third Avenue 4th Floor Paternoster House
Suite 1201 65 St Paul's Churchyard
New York, New York 10022 London EC4M 8AB United Kingdom
Tel: 1-212-826 1888 Tel: 44-20-7618 1888
Fax: 1-212-826 8704 Fax: 44-20-7618 1900
Member of FINRA Regulated by The Financial Services Authority

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