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Long TRIT: Chinese Water Treatment Company

|Includes: Tri-Tech Holding, Inc. (TRIT)

 Hi, 

good to join SeekingAlpha. This is my first blog entry, and it is an investment idea on a Chinese water treatment company. This entry will be one of many and I am happy to share my views as well as my ideas with you. I am investing in these ideas with the purpose to establish a track record for hedge fund and to make myself more interesting to potential employers!

I have entered this position August 7th, 2010 at an average price of 8,30. I will exit once it falls below 5% under the IPO price, or at 6.41, on the downside. However, I expect it to reach 14.94, and I will let it run from this point on with a trailing stop loss at 5% off this price. In this way, I expect to earn around 80% from this trade, while having an expected loss 22%, resulting in a expected gain/expected loss ratio of 3.51. At a current price of 9.03 its still a good buy in my opinion!

Investment idea:

LONG: Tri-Tech Holdings (TRIT:US) 


Company Description:

Provider of integrated solutions for China’s water environmental protection industry, including the water pollution remediation, software and engineering industries. It combines software and hardware to monitor and manage China’s natural and municipal water resources. Two lines of service: (i) Wastewater and Tail Gas Treatment and (ii) Water Resource Management. Customers are mostly local and regional government bodies in China and since providing these services in 2002, more than 250 projects have been implemented in provinces, municipalities, autonomous regions and special administrative regions throughout China.

The company made an IPO on September 9, 2009 at an offering price of 6,75USD.


Four major considerations: 

 1) low valuation compared to competitors
 2) financial track record
 3) large share buyback program
 4) fast-growth industry 


1.   Peer analysis

          Industry: Technical Services
          Market Cap: 17,8 B (NYSEARCA:USD)
          PER: 15,9x
          Price to book value: 5,1x
          Profit margin: 3,1%
          ROE: 10,4%

Top Companies (by Market Cap)

Company

Symbol

Mkt Cap ( Bn. USD)

PER

ROE %

Jacobs Engineering Group

JEC

4,4 B

13,7x

12,3%

KBR Inc

KBR

3,2 B

12,4x

11,6%

URS Corporation

URS

3,1 B

10,6x

7,6%

AECOM Technology Corp

ACM

2,5 B

12,0x

12,0%

CACI Internacional

CACI

1,3 B

11,6x

10,5%

Tetra Tech Inc

TTEK

1,2 B

13,9x

13,5%

Tri-Tech Holdings

TRIT

61,6 M

9,1x

28,9%

http://biz.yahoo.com/p/767conamed.html (as of 2 July 2010)

2.    Financial Track Record    


 

3.   Large Share buyback program

 

  • Large Share Buyback Program accounced on (27/05/2010) on the next 12 months
  • 8 million shares
4.   High-Growth Industry

 

  • Through 2010, China’s environmental investment is expected to be 184.2 Bn. USD which approximately 21% (40 Mn. USD) is expected to be used for water resource management. Given the favorable policies, the environmental protection industry in China will maintain an annual growth of 15-20% in the next 5 years. These actions will lead to the increase in the company’s projects in the wastewater treatment and water resource management.
  • China’s water infrastructure is under great stress facing widespread water scarcity, frequent floods, water pollution. China is struggling to procure clean and provide enough potable water for a growing population. As a result of the high population density, China faces serious challenges in managing its usable water supply. These challenges provide the company strong growth opportunities in helping provide usable water, reduce the effects of drought and alleviate flooding. 

Risks:

  • Revenue highly dependable on government owned companies and municipalities.
  • Single industry focus
  • Current stock trend, although it seems to have bottomoed out

  

 

 



Disclosure: Long TRIT

Disclosure: Long TRIT