20180822-招商证券_香港_-中国光大国际-00257.HK-Key_takeaways_from_analyst_meeting_regarding_proposed_rights_issue_5页_1001kb

China Everbright Intl (257 HK) Summary

Core Content

China Everbright Intl (257 HK) is a company in the environmental protection sector that has arranged an analyst meeting to explain its proposed rights issue. The company is seeking additional capital to capitalize on the fast-growing waste-to-energy (WTE) market opportunities, which are expected to be driven by strong demand for greenfield projects and increasing merger and acquisition (M&A) opportunities. The management has emphasized that they will only consider projects with an internal rate of return (IRR) greater than 10%.

Main Points

• Purpose of the Rights Issue: The proposed rights issue aims to raise additional capital to support the company's expansion in the WTE market.
• Capital Allocation:
  • 60% of the net proceeds will be used for financing WTE projects.
  • 25% will be allocated to developing asset-light and high-return environmental protection services.
• Market Prospects:
  • The management is optimistic about the WTE market, which is expected to see the construction of 200ktpd new capacities over the next two years.
  • With a 30% market share, CEI is projected to capture 60kptd of greenfield projects, requiring RMB10bn in equity capital expenditure.
  • The exit of inefficient players with capacities between 110kptd and 170kptd is anticipated, creating M&A opportunities.
• Strategic Goals:
  • CEI aims to become one of the top three players in the environmental protection segment in the mid to long term.
  • The company is targeting a blue-sea market with significant potential in areas such as atmospheric monitoring and testing services, which have an estimated market size of RMB30bn/year.
• Financial Impact:
  • The rights issue is expected to reduce the company's gearing ratio from 61% to 54%, lowering financial costs and providing flexibility for future expansion.
• Investment Recommendation:
  • The analysts maintain a BUY rating with a target price of HK$9.5, indicating a potential upside of 37.7% from the current price of HK$6.90.
• Financial Performance:
  • Revenue is projected to grow from HK$13,971m in 2016 to HK$37,762m in 2020E.
  • Gross profit is expected to increase from HK$5,310m in 2016 to HK$12,242m in 2020E.
  • Net profit is anticipated to rise from HK$2,785m in 2016 to HK$5,827m in 2020E.
  • Core EPS is expected to grow from HK$0.63 in 2016 to HK$0.95 in 2020E.
• Valuation Metrics:
  • Core P/E ratio is projected to decrease from 11.0 in 2016 to 7.3 in 2020E.
  • P/B ratio is expected to decline from 1.8 in 2016 to 1.0 in 2020E.
  • Dividend yield is anticipated to increase from 3.0% in 2016 to 4.3% in 2020E.
• Debt and Liquidity:
  • Net debt/equity is projected to decrease from 73.5% in 2016 to 41.8% in 2018E, but increase to 63.5% in 2020E.
  • The company is expected to maintain a current ratio of 1.6 in 2018E, indicating a strong short-term liquidity position.

Key Information

• Market Cap: HK$42,388m as of the latest data.
• Average Daily Volume: 24.17mn shares.
• BVPS (2018E): HK$7.24.
• Shareholding Structure:
  • Guildford Ltd holds 28.6% of the shares.
  • RRJ Capital Master Fund II LP holds 4.3%.
  • Pictet Funds SA holds 1.7%.
  • Everbright Investment & Management holds 1.6%.
• Share Capital:
  • No. of shares outstanding: 6,143mn.
  • Free float: 4,102mn.
• Financial Ratios:
  • EBITDA margin is expected to decrease from 35.7% in 2016 to 29.7% in 2020E.
  • ROE is projected to remain stable, ranging from 16.1% in 2016 to 14.2% in 2020E.
  • Net debt/total cap is expected to rise from 42.3% in 2016 to 38.8% in 2020E.

Investment Ratings

• Industry Rating: OVERWEIGHT (expect the sector to outperform the market over the next 12 months).
• Company Rating: BUY (expect the stock to generate 10%+ return over the next 12 months).

Financial Highlights

• Recurring Net Profit: Expected to increase from HK$2,825m in 2016 to HK$5,827m in 2020E.
• Gross Profit: Projected to grow from HK$5,310m in 2016 to HK$12,242m in 2020E.
• Operating Profit: Anticipated to increase from HK$4,669m in 2016 to HK$10,825m in 2020E.
• EBITDA: Expected to rise from HK$4,982m in 2016 to HK$11,234m in 2020E.

Conclusion

China Everbright Intl is positioning itself to capitalize on the growing WTE market through a proposed rights issue. The capital raised will be used to finance WTE projects and expand into the environmental protection sector. The company's financial performance is projected to improve, with increasing revenue, gross profit, and net profit. The analysts maintain a BUY rating with a target price of HK$9.5, indicating positive expectations for the company's future growth and performance.