Sapphire Corporation Limited is one of the few companies listed in the SGX that have railway business in China hence exposing it to the potential opportunities in the One Belt One Road initiative (OBOR).
It’s 100% owned subsidiary Ranken is the company that are in the railway infrastructure business in China.
Sapphire is a turnaround story after the new management turned it from a mining company into a railway infrastructure company.
There have been some good analysis on Sapphire online (you can read one of them here ) hence I shall not delve deeper into them. But today I want to focus more on the future for Sapphire and postulating what could be in store for Sapphire.
What actually caught my eyes was this:
This was announced in May 2017, where Ranken have entered into a strategic partnership with BeiJing Enterprises Water Group and China Railway Investment Group. After doing some research, there are some reasons to believe that this partnership may morph into projects in China Sponge Cities programme.
1) What is the China Sponge Cities programme?
As China becomes more urbanised, the problem of flooding has become a major issue in China. Also, China is also one of few countries with the least water per capita. Water conservation and management have become a pressing issue.
The Sponge Cities programme was rolled out in 2015 where a few cities in China were pilot tested for the programme, which will eventually be rolled out to all cities. For instance, China hopes to have 80% of the cities constructed to be of Sponge Cities standard by 2030.
In the 13th Five Year Plan, the Chinese Government also set out some important objectives for water conservation.
These all show the urgency and importance that the Chinese government places on water conservation and management hence the importance of the Sponge Cities programme.
So how will this development benefit Sapphire?
2) Potential benefits for Sapphire
To understand the potential benefits to Sapphire, we first need to take a look at what the management of Sapphire are looking to do in 2017.
Yup the management is trying to partner up with bigger companies in China to secure projects together under the Public-Private Partnership (PPP). That was found in the 1Q17 report released on 12 May 2017.
And in 16 May 2017, they announced the strategic partnership with Beijing Enterprise Water Group (BEWG) and China Railway Investment Group (CRIG).
PPP policy in China have been quite problematic. Due to the fact that many state owned enterprises are better positioned to win the PPP contracts as they are better financed by China banks compared to private firms.
Hence Sapphire partnership with SOE will definitely positioned it well to grab a piece of the pie although in PPP profits margin are usually much lesser compared to going at it alone.
Furthermore, this partnership pushes Ranken out of their usual railway infrastructure business by allowing them to build expertise in new areas of infrastructure.
In my opinion, this partnership could be a signal for them to take on projects under the Sponge City programme. Just like how in May 23, 2017 , an Australian Consortium announced their participation in China Sponge City programme.
They could be doing the same with the partnership between the three. BEWG have expertise in building water treatment plants and systems, and Ranken have expertise in tunneling which could be of help to creating a good drainage system for the Sponge Cities. Quite frankly, I can’t find much information on CRIG as their website is really hard to interpret haha!
Taking a deeper look into BEWG, which has a much better investor relations website. In an announcement dated 27 June 2017
Hmmm could Ranken be part of any of these 10 projects? Out of 10 projects, 7 projects are PPP of nature! And some projects requires works like ecological restoration which Ranken have some form of experience with.
This will be an exciting development to watch!
Sapphire lack of contracts wins have led to many investors pushing down the stock price. But upon digging further it seems that there might be a silver lining. However, all these are just possible developments in my opinion which could be beneficial to the company. Please always dyodd! 🙂