Sound Global

[CityFarmer]

CF, I did a closer look and track their OCF and the start and completion of various water projects over the quarters for the past few years. Was very concerned with the frequent and rather hugh negative OCF. Their cash cycle is rather inpredicitable too. Going forward, they are going o start on a 2 billion water plan project soon, the largest so far, and I believe judging by the closeness in timing might be the reason why they need to raise funds thro senior notes. When they are already coping with negative cash flow with smaller and projects that are more spaced out over the years (I noticed orders always peak at q4 and then temper off and then peak at q4 again, and q4 peaks are getting higher and higher), are they going to suffer another large outflow of cash in the near future?

If I collate my data correctly, they didin't have a positive OCF since 2009.

Would really like to hear your views. Feel free to point out anything I missed or errors. Thank you

The business model of WWT is capital intensive, long pay-back period but stable recurring income and reliable cash flow. Looking into any WWT company CF statement, negative OCF is a norm as of now.

It takes 2-3 years of construction time, before goes into operation, where the recurring cash flow starts. The pay-back is typically 10 years

The company started BOT projects dated back to 2009, most of them already in operation i.e. recurring cash flows started.

This period is at the peak of demand for WWT. Base on the last few BOT projects secured, the company is going after higher quality projects versus their previous ones.

The debt is more than 2.2 bil RMB, but the company is in net cash position. The funding of the new BOTs are supported both by the debt, and the recurring income from previous BOTs. I don't see the likelihood of excessive outflow of CF in near term which demand another cash call with more debt.

Expensive debt is one of major concern, especially the recent senior note. It seems there are internal dispute on capital funding between CFO and the management, which 2 CFO changes within 2 years. This is definitely a big negative with a company with capital intensive business.