Shares in Newater Technology, a Chinese membrane systems supplier focused on treating complex industrial wastewater streams, closed up 79% at the end of their first day’s trading on the Nasdaq stock exchange on 28 July.
The success of Newater’s initial public offering (IPO) echoes the stellar initial performance of compatriots RINO and Duoyuan Global Water (DGW) which listed on the Nasdaq and NYSE respectively in 2009 to great fanfare. Damning fraud exposés by short-seller Muddy Waters and a mass exodus of investors meant that both had been delisted by 2012, while Tri-Tech Holdings followed the same path in 2014 (see table). No Chinese water firm has dared test US investor sentiment since – until now.
Newater, which is known as Yantai Jinzheng Eco-Technology in China, positions itself as a technology pioneer. The Shandong-based group specialises in disc tube reverse osmosis (DTRO) and disc tube nanofiltration (DTNF) processes to treat wastewater. The firm has grown rapidly
since its establishment in 2012, largely by providing solutions for municipal landfill leachate treatment, and by cultivating clients in the chemical and energy industries.
“We are currently and will keep focusing on high-salinity wastewater treatment and ZLD in the next one to three years,” Yu Ping, deputy general manager of Newater, told GWI. “We are currently more involved in industrial parks, municipal landfill leachate, and ZLD for the power industry. In the future, we will also focus on other wastewater reuse,” she added.
Newater raised a total of $8.05 million by selling 15% of its enlarged share capital through an IPO at a price of $5.00 per share. The shares opened trading at $7.32, rose to $8.93 by the end of the first day, and had risen to $9.14 by 16 August, when GWI went to press. The market capitalisation of the company has increased from $53 million at the IPO price to $97 million in under three weeks. Founder and CEO Yuebiao Li remains the largest shareholder.
Newater recorded net income of $2.43 million on revenues of $12.28 million inthe year ending 31 December 2016, almost double its 2015 revenue of $6.98 million.
“We are aiming to keep the current growth rate or go even higher,” Yu told GWI. Around 60% of the revenue currently comes from the Chinese provinces of Jiangsu, Liaoning and Inner Mongolia, although Yu explained that the company will “try to expand into western arid provinces such as Xinjiang and Shaanxi, and the heavily polluted eastern coastal areas such as Shandong and Hebei. “We are also targeting the international market, and that’s why we chose to be listed on Nasdaq,” she added. “We have been selling our products to the Korean and Italian markets, and we are aiming at being the leading company in this [specialised membrane] sector.”
Newater will be pitting itself against the likes of Pall Water, GE Water and Koch Industries, which all have international DTRO businesses. Even in China, Newater admitted in its IPO prospectus that these foreign companies “have a competitive advantage over us with regard to capital and technology”. At least the company will able to secure market share in the domestic context by identifying smaller projects which do not reach the desks of the international corporations. Its ability to do that outside of
China is largely untested, however.
Internationally, Newater intends to concentrate on selling DTRO systems, and Yu hopes that the Nasdaq listing will give it better access to both technology companies and markets. At home in China, on the other hand, the company is also a “pioneer in containerised systems, for which we see an upward trend in China,” Yu added.
“The driver of this containerised system is that it’s easier to carry, and also when there is something wrong with the system, it can be transferred back and get fixed,” Yu explained. According to the treatment requirement, Newater integrates various treatment processes such as evaporators and crystallisers into the container, trains the operational staff, and remotely analyses the plant’s performance.
In the Chinese market, Newater is competing most directly with Beijing TDR Enviro-Tech, one of the leading domestic suppliers of DTRO technology. Beijing TDR was sold by Shanghai-listed project developer Heilongjiang Interchina to a consortium of investors led by Shanghai Dongxi for RMB650 million ($100 million) in 2015, just three years after Interchina bought it for RMB550 million ($82 millon). Its reported revenue from January to November 2015 was only RMB82.75 million ($12 million), however, while its revenue in calendar 2014 was RMB299.6 million ($45 million).