Datang Environment seeks growth in new businesses and markets via Hong Kong listing

PUBLISHED : Wednesday, 02 November, 2016, 8:13pm
UPDATED : Wednesday, 02 November, 2016, 10:59pm

Datang Environment Industry Group, the power pollution control projects unit of state-owned power generator China Datang Group, aims to raise up to HK$2.56 billion via an initial public offering to fund operations and new businesses.

Besides operating facilities to cut pollutants for power plant owners, the company plans to enter the so-called energy management contract business, by helping coal-fired power plant operators achieve savings from conserving energy. It also wants to make inroads into the waste water and solid waste treatment business.

“China’s [coal-dominated] energy resource base means environmental protection and energy conservation are key for our nation’s development,” Datang Environment general manager Deng Xiandong told reporters on Wednesday.

Datang Environment warned in its prospectus that any slowdown in the expansion of China’s coal-fired power plants would negatively affect its business.

According to industry regulator the National Development and Reform Commission, the nation completed coal-fired power projects worth 66.1 billion yuan in the first nine months of the year, down 8.4 per cent year-on-year amid a major capacity oversupply situation.

The decline came after a 46.6 per cent jump last year to a record 139.6 billion yuan, as sharp falls in coal prices encouraged developers to build more power plants.

The nation’s local governments have also set deadlines straddling the end of next year to the end of 2020 for all coal fired power plants to be retrofitted, so that emissions will not exceed standards set for power plants fuelled by cleaner burning natural gas.

Asked if this means the firm will need to find new growth drivers in a few years, Deng said Datang Environment will expand in the water and solid waste treatment industries, and seek growth in the power plant emission control business abroad.

“India has only just started to retrofit its power plants to address its chronic air pollution problems,” he said.

At the end of September, the company had 5 billion yuan worth of uncompleted engineering project contracts, of which 2.46 billion yuan of revenues are expected to be booked this year, 1.94 billion yuan next year and 588 million yuan in 2018.

Lifted by a coal-fired power plant construction binge, net profit surged 67.4 per cent year on year to 438.5 million yuan in the first six months, after a 40 per cent jump to 750.3 million yuan in the same periodlast year from 2014.

The gross profit margin in its most profitable segment, the pollution control facilities concession operation, was 39.4 per cent in the first half.

The second biggest earnings driver, the production and sales of catalysts used to siphon off nitrogen oxides from power plant emissions, commanded a gross margin of 54.8 per cent.

Parent China Datang contributed 51 per cent to its revenues in the first half compared to 68 per cent in the same period last year.

Datang Environment plans to sell 540 million shares at HK$3.55 to HK$4.74 each. The public share offer starts on Thursday.

The company said in its listing prospectus that at the end of last year it had the largest market share in concessions won from power plants in China to cut sulphurous and nitrogenous emissions by contracted capacity.

It aims to distribute dividends equal to not less than half its distributable profit each year.

The company had a net debt-to-shareholders’ equity ratio of 91.4 per cent at the end of June. Return on equity was 28.2 per cent last year.