Recommendation: BUY. CIMC Enric Holdings Ltd. (3899.HK) 18 August 2014 TP: HK$14.2 (+42.7%) SECTION 1 RESULTS BRIEFING SECTION 2 COMPANY BACKGROUND

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1 Recommendation: BUY TP: HK$14.2 (+42.7%) CIMC Enric Holdings Ltd. (3899.HK) 18 August 2014 SECTOR: Oil & Gas equipment HSI: 24, PRICE: HK$9.95 EARNINGS (reported in RMBm) KEY DATA For the fiscal year ended E 2015E 2016E Issued Capital (m Shrs) 1,890.7 Turnover 8,083 9,982 12,207 14,476 16,796 Market Cap (HK$m) 19,635 Operating Profit 936 1,203 1,485 1,757 2,039 Avg. 6M Turnover (HK$m) 33.0 Net Profit ,206 1,429 1, Week High/Low (HK$) / 7.31 EPS (RMB) Net Gearing (%) (20.61) % Change 29.0% 25.0% 26.7% 16.2% 16.7% Book Value per Share (HK$) 3.31 DPS (RMB) Free Float (%) 30.0% Dividend yield (%) 0.7% 1.1% 1.3% 1.6% 2.1% Major Shareholder(s) CIMC (69.9%) Note: Differences may arise due to rounding errors Source: Bloomberg, HKEx, Company data, Platinum estimates SECTION 1 RESULTS BRIEFING Strong performance in FY13. CIMC Enric ( Enric ) recorded revenue RMB9,981m, representing YoY growth of 23.5%, while the net profit was up by 28% YoY to RMB973m. Revenue from energy equipment and liquid food equipment surged by 25.8%, 8.7% and 56.6%, respectively. Gross margins slightly improved 0.8ppts to 20.3%, net margin expanded by 0.3ppts to 9.7%. EPS increased 25% YoY to RMB0.50. Final dividend was RMB Solid balance sheet. The company maintained a solid position, recording RMB 1,116m operating cash flow and RMB1,491m net cash. Inventory turnover days improved from 89.2 days to 87.1 days due to the strong sales. SECTION 2 COMPANY BACKGROUND China s leading gas container manufacturer. Enric listed in Hong Kong Exchange in 2006, primarily engaged in the design, development, manufacturing, and engineering of products, and the provision of technical maintenance services for energy, chemical and liquid food industry. The company s products include: CNG seamless pressure cylinders, CNG and LNG trailers, LPG/chemical liquids trailers and tanks, natural gas refuelling station systems and, stainless steel processing and storage tanks in the liquid food equipment segment. Currently, Enric has roughly 50%+ and 30% market share of trailer and storage tank in China respectively. CIMC, its parent company, holds 70% of the total shares. Platinum Broking IMPORTANT DISCLOSURES ARE PROVIDED ON THE LAST PAGE OF THIS REPORT

2 CIMC (2039.HK) 100% 100% Charm Wise CIMC HK Public investors 59.9% 10.1% 30% CIMC Enric (3899.HK) Source: Company Data. SECTION 3 BUSINESS OUTLOOK Strong natural gas demand to boost infrastructure. China s natural gas consumption saw strong growth of 15.0% YoY, and reached bcm in 2013, which is in line with 10-year CAGR of 15.6%. According to 12 th -FYP, China total natural gas consumption expected to reach 230 bcm in 2015E, representing CAGR of % in the next two years. As a result, we believe china will improve its infrastructure to meet the surge in demand, including LNG receiving terminals, pipeline and as well as the LNG containers. Exhibition 2: China s natural gas consumption. Source: NBS Platinum Broking 2

3 Exhibition 3: Map for LNG terminals Source: Town Gas (1083.HK) FY2013 Annual Results Investor Presentation, p.33 Growth potential for Natural Gas Vehicles. Country s total number of Natural Gas Vehicles ( NGV ) reached nearly 1m by the end of We believe NGV growth will accelerate in due to tighten environmental regulation. China s total number of NGV is estimated to reach 205,000 in Several local governments have already released aggressive plans for NGV adoption. Beijing plans to convert 1,950 and 1,000 buses into NGV in 2014 and 2015 respectively; Tangshan, Hebei, the city targets to converts all its buses and taxies into NGV by Enric, as the major supplier of China s fuel cylinders for vehicles (with approximately 20% of the market share) will be benefit from continues improve in NGV adoption. Gas refuelling stations is another growth driver. Accompanying the increase in NGVs, demand for gas refuelling satiations infrastructure is expected to surge as well. China targets to increase total number of gas refuelling stations to 10,000 by the end of 2020 (roughly 1,844 by the end of 2013), representing 28% CAGR within the next 6 years. Given Enric s current market share of 20-30%, Enric will further enjoy the surge in demand from gas refuelling stations. Platinum Broking 3

4 Exhibition 4: China s NGV Source: Platinum Estimates Government subsidies to boost LNG-powered vessels conversion. In April 2014, the Ministry of Finance and Ministry of Transport jointly announced to subsidy for LNG-vessel conversions of RMB m (60-80% of the total cost), which significantly decreases the payback period from 10 years to around 2 years. The total market value of the LNG-powered vessels equipment estimated around RMB75b. Given the favourable subsidy policy and Enric s strong position in the market, we believe company s sales of LNG-vessel equipment to rise significantly. Secured revenue from EPC contracts. Enric s latest activities highlight intention to enter the energy service. The Company formed a JV with TGE (a subsidiary of Enric s parent company, CIMC), and entered a RMB800m EPC contract together with ENN Energy (2688.HK), of which Enric s portion is estimated to be RMB300m. Gross margin of the contract estimated to be around 17-18%. The Company is set to enter another EPC contract with Shenzhen Gas. Contract value is estimated to be RMB200m, and the contract is still under negotiation. The 2 potential deals will further enhance Enric s backlog of EPC contract to around RMB4b, and enhance the company s future revenue growth. We estimated Enric s sales revenue from energy segment will maintain at high growth around 26% YoY in FY14. Exhibition 5: Enric s energy equipment revenue estimation Source: Company data, Platinum estimates Liquid food equipment segment. The liquid food segment recorded 56.6% YoY growth, benefiting from the synergies after acquisition of Ziemann in 3Q12. In addition, the order from Mexican (Euro 200m value, gross margin at 20%) will start revenue recognition within FY14 2H14. The annual contribution to Enric is estimated to be RMB560m. We believed Enric will achieve over 30% growth within the segment with stable gross margin, backed by the strong backlog. Platinum Broking 4

5 Exhibition 6: Liquid food equipment revenue Source: Company data, Platinum estimates Asset injection by its parent company. On 10 July 2014, CIMC Enric announced that it will acquire Holvrieka (China) ( NCLS ) from its parent CIMC via share issuing with total consideration is Rmb337m (as compared with a net asset value of RMB314m in FY13). Issuance price is HK$10.6/share, or 0.8% premium to its last closing price. CIMC s stake will increase to 70.4% upon completion. Earnings impact from the asset injection is limited as NCLS s net profit is 7m in FY13, representing approximately 0.7% of Enric s 2013 s earnings. However, we believe that Enric will benefit in the long term from synergy, as it will provide more exposure to China and other Asian markets, benefiting from cost saving by shifting production from Europe to China. NCLS holds a 187k sqm land in Nantong, Jiangsu, which could be used for further production capacity expansion. Potential asset injection might be another key catalyst. Enric s solid cash position (FY13: RMB 1.5b net cash) and positive free cash flow provides a high possibility to engage in M&As to further extend its energy segment and provide further upside on earnings. Platinum Broking 5

6 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Volume (m shares) Share price (HK$) CIMC Enric Holdings Ltd.. 18 August 2014 SECTION 4 VALUATION Exhibit 6: Relative valuation Name Ticker Mkt cap (HK$m) EV (HK$) Closing price (HK$) 52-week High/Low (HK$) 6M Volume (m shrs) 6M Turnover (HK$m) FY13 Avg. P/E (x) Cur. FY14E FY15E P/E (x) P/E (x) P/E (x) FY13 Avg. Yield (%) Cur. Yeld (%) FY14E Yield (%) FY15E Yield (%) FY13 ROA (%) FY14E ROA (%) FY15E ROA (%) FY13 ROE (%) FY14E ROE (%) FY13 Net FY15E gearing ROE (%) (%) 1 Linde Ag LIN GR 294,920 4,028, / Cimc Enric Holdings Ltd 3899 HK 19,635 18, / (20.61) 3 Chart Industries Inc GTLS US 18, , / Zhangjiagang Furui Special-A CH 7,984 10, / Simple avg Mkt cap wtd avg Source: Bloomberg, Platinum estimates Enric is currently trading at 16.3x PER, 27.3% discount to its major domestic and global competitors of 22x-24x. Given Enric s (1) leading position in China s energy equipment market, (2) higher growth potentials from both LNG-vessel conversion and Liquid food segment, (3) strong EPC backlogs with stable gross margin, and (4) potential assets injection to further enhance earnings. Thus, we valued Enric at 18x FY14E P/E, in line with major domestic competitor Furui, arriving at TP of HK$14.2, with upside potential of 42.7%. Exhibit 7: CIMC Enric 2-year price chart Cimc Enric Holdings Ltd (3899.HK) Last price (Aug 18,14) = HK$9.96 SMA(50) = SMA(100) = SMA(200) = Volume (Aug 18,14) = 2.9m 6M avg. = 33.3m Platinum Broking 6

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