Profit warning
According to Hong Kong media, China’s state-owned enterprises (SOEs) including China Everbright (CEI) are undergoing a special audit, with a focus on links to corruption in the management team. This has sparked fears that the deal between HanKore and CEI may fall through. HanKore’s shares reacted negatively, with the price correcting 18.5% last Friday. Separately, HanKore also issued a profit warning.
Accounting related; no impact on cash flows
We would advise investors to not be unduly worried about the profit warning as it is purely accounting related with no impact on HanKore’s cash flows. The profit warning relates to:
(1) fair value loss on contingent liability from the acquisition of Jiangsu Tongyong Environment Engineering, and
(2) fair value adjustments on outstanding warrants. The latter is a yearly exercise whose impact was not apparent to us before as the market price was just slightly above the exercise price of
SGD0.04 for the warrants.
We estimate that SGD23.2m (CNY116m) needs to be charged in 3QFY6/14 P&L, putting the company in the red for the quarter.
We would recommend continued focus on HanKore’s strong core operations. The market appears to have written off the CEI deal. In our view, current share price weakness presents a good buying opportunity. Reiterate BUY with the TP unchanged at SGD0.17.
No comments:
Post a Comment