China effluent enthusiasm will survive short stink

Beijing Enterprises Water

28/11/2016 01:25

(The author is a Reuters Breakingviews columnist. The opinions 
expressed are her own.) 
    By Katrina Hamlin 
    HONG KONG, Nov 28 (Reuters Breakingviews) - Not all sewage 
stinks. China's wastewater sector is under attack from 
short-sellers, facing its second big scandal this year. But 
investors can hold their noses: with greener policies on the 
mainland and bigger cities, this industry is anything but the 
pits.  
    Glaucus Research has zeroed in on Hong Kong-listed CT 
Environmental  1363.HK , finding a disparity between its 
reported water treatment volumes and official government 
figures. The shorts reckon CT's revenues could be 30 percent 
less than it claims and its shares 80 percent overvalued. CT 
shares crashed 13 percent on Nov. 23, the day the research note 
was published, and were promptly suspended at a market value of 
$1.5 billion. The company is yet to issue an official response.  
    Some skepticism is warranted in a fast-growing industry that 
has yet to consolidate. There are also more cautionary tales to 
be found amidst the broader cleantech boom - the dramatic demise 
of Hanergy Thin Film Power  0566.HK  and China Metal Recycling, 
for example. Hong Kong's regulator suspended trade in shares of 
sewage specialist Sound Global  0967.HK  earlier this year and 
the stock remains on hold.  
    But other outfits look less vulnerable to the kind of 
criticism levied by Glaucus. The short-seller readily admits 
that there are peers such as the $6.4 billion Beijing 
Enterprises Water  0371.HK  and Kangda International 
Environmental  6136.HK  whose data appears to match the official 
version.  
    The underlying wastewater growth story smells good. China 
counted over 770 million city dwellers by the end of 2015, up by 
more than 10 percent from 2010. Steady urbanization brings more 
muck within range of existing and new infrastructure: China's 
sewage volumes could come close to 100 billion tons in the next 
five years, according to Guosen Securities which forecasts a 
compound annual growth rate of up to 5.5 percent.  
    Meanwhile authorities are desperate to clean up China's 
infamously filthy water and soil, so policies and regulations 
tend to support the industry. Investor enthusiasm for effluence 
won't be so easily washed away.  
     
    On Twitter https://twitter.com/KatrinaHamlin 
 
     
    CONTEXT NEWS 
    - Trading in shares of Hong Kong-listed CT Environmental 
Group (CT) have been suspended since Nov. 23.  
    - Short-seller Glaucus Research published a report earlier 
on the day criticizing the wastewater treatment company's 
accounting practices, prompting a 12.6 percent fall in the 
shares. 
    - Glaucus says it has found a significant disparity between 
CT's reported water treatment volumes, and official government 
data.  
    - The research firm estimated CT's revenues were at least 30 
percent less than reported and valued its shares at HK$0.38, 82 
percent below the closing price on Nov. 22.   
    - CT declined to comment on Glaucus' report to 
Breakingviews. The company has yet to issue an official 
response. 
    - For previous columns by the author, Reuters customers can 
click on  HAMLIN/   
    - SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS: http://bit.ly/BVsubscribe 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
CT Environmental shares halted after short-seller report     
 urn:newsml:reuters.com:*:nL4N1DO1ZO  
Hong Kong regulator orders Sound Global share trading halt     
 urn:newsml:reuters.com:*:nL3N17H18R 
Glaucus report     http://bit.ly/2g6Xm95 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Editing by Una Galani and Kathy Gao) 
 ((katrina.hamlin@thomsonreuters.com; Reuters Messaging: 
katrina.hamlin.thomsonreuters.com@reuters.net)) 
 
Keywords: CTEG STOCKS/SHORTSELLER BREAKINGVIEWS