SIIC Environment's recent acquisition will boost profit by 9%

Net gearing will also rise to over 50%, analyst said.

SIIC Environment announced that through its two subsidiaries it will increase its shareholding in Lonjiang subsidiary from 25% to 58%. After the deal worth RMB836m (US$124m), Longjiang will become a subsidiary of SIIC.

Jefferies believes that the deal should increase the company's 2016 net profits (NP) by about 9% and net gearing by 8pts to just above 50%.

"Net profits attributable to the assets acquired or disposed of, compared with FY15 net profits is 10.07% according to the announcement. Based on our estimate, the deal should increase FY16 NP by about 9%," it said in a report.

Longjiang holds 41 projects relating to the water treatment and supply design capacity of 3.55 million tons/day and sludge handling design capacity of 1,330 tons/day.

Longjiang project’s total NP is RMB120mn in 2016. SIIC expects to grow Longjiang’s NP by >20% p.a. going forward through reduction of gearing. Longjiang currently has about RMB50mn of debt and the average interest cost is about 6%.