Post by
TickBomb on Jul 03, 2018 9:52am
Annual Meeting Summary
Just an update on Changfeng Energy. I was able to attend the annual meeting in Toronto last Thursday. It was a relatively small audience (me and about 5 other analysts from various funds or brokerage houses). So I was able to get good insight into the company and ask all the questions I wanted. The highlights: -Projects. Sale of their interest in subsidiary Pingxiang Gas Co was done to free up capital to expand from a primarily natural gas infrastructure portfolio to investing in other energy assets. They continue to build other natural gas infrastructure where it makes sense, since the return on cash is high. The have broken ground on their new energy distribution system in Hainan, which is called the "Hawaii" of China. This project is essentially a massive heat pump system that sucks in ocean water, cools it during the night with cheap electricity, and distributes it during the day to resorts through a pipe network. They are constructing 5 buildings (about an acre in size) to store and distribute the chilled water. It seems like an interesting project in from a city planning perspective, aligning with the green efficiency of China's planning. This is the joint venture with lectricit De France (revenue ~70B Euro), which was signed in front of president Xi Jinping and President Macron from France. If I remember correctly, similar system have been built in Europe. They expect cash flow starting early 2019. -Share buy backs and capital allocation. I asked specifically why they don't buy back more shares. With a small loan and their current cash situation, they could essentially privatize the business. The answer is they want to grow more and use the current capital to invest in these new projects. They didn't have the return on capital numbers for future projects to compare against the buyback return. But I get it, the company is small and they think they can grow at a faster return than a buyback offers (current earnings yield for the company's stock is around 10% vs ROIC of 13%). They anticipate a good growth for the dividend in the future. -Hong Kong Stock Exchange (HKSE) IPO. They are still on track for the IPO. I was invited to the "IPO party" for shareholders, which was hinted as being in the coming months. They said to not expect a huge cash raise, as the purpose of the IPO is liquidity and not necessarily more cash. The shares will be transferable across the exchanges (I'm no expert in how that works), but you can expect arbitrage to occur. The other thing to think about is if the stock gets to its true value (I think $2-3/share or a >$100-200M market cap), they may upgrade from the venture exchange to the Toronto Stock Exchange at the same time. -Debt funding. I asked where they get their debt funding from. Apparently they are able to get really good green bonds from the Chinese government. So I don't necessarily expect any large debt raises from the HKSE. Hence why they fund their assets with debt and are hording cash. So what to do? I've been buying more and more shares since the last update (I got another good chunk at 0.80 and have been picking away above that here and there). I expect the true value to converge on a more reasonable valuation. I think with new infrastructure deals like the Hainan project, they will continue to grow. So it remains a double whammy (low price + growth). It's tough to buy the shares as there is very low liquidity. But every once and a while someone with no patience dumps a bunch. Even at $1, I think you will do fine in the long run. GLTA.
Comment by
TickBomb on Jul 03, 2018 10:32am
Sorry about the lack of paragraphs in that post. The internet doesn't like me today.