Target Price

$Citic Envirotech(CEE.SI) the last private placement price of 0.85 should be the fundamental target. The company has undergone management changes in the last one year and has kitchen sink the past ill strategy of issuing USD perpetuals under a currency depreciation world. If the losses are well absorbed accounting wise, 2019 should be a start of a new phase.

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$Citic Envirotech(CEE.SI)
The current management decided to kitchen sink the bad decisions made by past leadership. This means using the final quarter to take as much losses and provisions as possible the risks hidden in the balance sheet. This includes the USD perpetual and the contract risks. Taking loan in replacement of the perpetual results in the reduction of NAV to 56 cents. They also took up to 36 milllon of impairment losses in Q4 to reflect the true value of the balance sheet. 2017 restatement of account plus the provisions explains the increase in operating expenses and the amount adds up. This means if we take the like for like comparisons into consideration, the core business is actually doing very well, (113+36=149)

All in all, this is a brave move to shake off all past ill decisions and the company is now in a clean slate to face the markets, which the company is getting more relevant each day in the waking up of environmental challenges in China.

The challenge of doing business in China is always there, Lanzhou contract was difficult as the province is not as well to do. But the need to clean the water is urgent after the 2014 drinking water scare in Lanzhou. Besides, if the source of water from Yellow river posts a health threat, the whole northern China will be in danger. I think being with CITIC group will only help to mitigate these business risks.

The top objectives now are to keep all the good work at core, leverage on technology, which they have, thanks to Memstar, and make sure that the cash flow is positive for 2019.

Long winded but at this price, 10 cents below NAV...the judgement is yours.

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