20181108-招商证券_香港_-粤丰环保-01381.HK-Be_patient_6页_1mb

Canvest Env (1381 HK) Company Report Summary

Core Content

Canvest Env is a company in the environmental protection sector, with a focus on waste treatment and capacity expansion. The report indicates that the company's management remains confident in achieving its capacity addition target of approximately 7 ktpd in 2018. The execution of most projects is on schedule, except for the Jianyang project, which is delayed to 2021 due to site selection issues. The company is expected to announce new project wins in the next 1-3 months, with projects located in both existing and new provinces.

Main Points

• Project Progress:

  • Lufeng Phase I (1,200tpd) and Beiliu Phase II (350tpd) have started trial runs.
  • Qingyuan Phase I (1,500tpd) is pending for site selection and is expected to commence in mid-2020.
  • Xinyi Phase I (500tpd) and Dianbai Phase I (1,500tpd) are scheduled for 2020 with a quarter delay.
  • Jianyang Phase I (1,500tpd) is delayed to 2021 due to site selection issues.

• Target Price and Rating:

  • The target price (TP) has been cut from HK$4.9 to HK$4.7, and the rating has been downgraded to NEUTRAL.
  • The TP cut reflects a 9% potential upside and the company's current valuation is considered fully valued.
  • The company is trading at 12.5x 2019E P/E, which is higher than its peers' 7.4x-8.0x 2019E P/E.

• Earnings and Revenue Projections:

  • Earnings estimates have been reduced by 3-6% for 2018-2020 due to delayed project wins and revised revenue assumptions.
  • The company's revenue is projected to grow from HK$2,985 million in 2018E to HK$4,852 million in 2020E, with a CAGR of 16.4%.
  • Gross profit margin is expected to increase slightly, while construction revenue is projected to decrease by 19-36% over the same period.

Key Information

• Project Pipeline:

  • The company has a mix of greenfield projects and M&A as sources of capacity expansion.
  • 60% of new capacity is expected to come from greenfield projects, and 40% from M&A.

• Valuation Metrics:

  • Core P/E ratio is projected to decrease from 14.4 in 2018E to 10.6 in 2020E.
  • P/B ratio is expected to rise from 2.25 in 2018E to 2.89 in 2020E.
  • Net debt/equity ratio is projected to increase from 51.5% in 2018E to 74.4% in 2020E.

• Dividend Yield:

  • The dividend yield is expected to increase from 1.0% in 2018E to 1.4% in 2020E.
  • DPS (dividend per share) is expected to rise from HK$0.05 in 2018E to HK$0.06 in 2020E.

Financial Highlights

Revenue

• 2016: HK$1,654 million
• 2017: HK$2,398 million
• 2018E: HK$2,985 million
• 2019E: HK$4,014 million
• 2020E: HK$4,852 million

Gross Profit

• 2016: HK$589 million
• 2017: HK$819 million
• 2018E: HK$1,063 million
• 2019E: HK$1,303 million
• 2020E: HK$1,586 million

Net Profit

• 2016: HK$402 million
• 2017: HK$576 million
• 2018E: HK$740 million
• 2019E: HK$849 million
• 2020E: HK$1,003 million

EPS (Earnings Per Share)

• 2016: HK$0.20
• 2017: HK$0.24
• 2018E: HK$0.30
• 2019E: HK$0.35
• 2020E: HK$0.41

Key Risks

• Upside Risks:

  • More new project wins.
  • Faster-than-expected project commissioning.
  • More M&A activity.

• Downside Risks:

  • Lower-than-guided new projects secured.
  • Lower project returns due to fierce competition.
  • Further delay in existing plants commissioning.
  • More restrictive emission standards leading to higher operating costs.

Investment Ratings

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

Analyst Disclosure

• The analysts responsible for the report certify that the views expressed accurately reflect their personal views on the subject securities and issuers.
• No part of the analysts' compensation was related to the specific recommendations or views expressed in the report.

Regulatory and Disclaimer Information

• This document is prepared by China Merchants Securities (HK) Co., Limited and is for information purposes only.
• It is not intended as investment advice and should not be relied upon.
• The information and opinions are based on sources believed to be reliable, but CMS HK does not represent or warrant their accuracy, correctness, or completeness.
• The document may not be reproduced, distributed, or published without prior consent from CMS HK.
• CMS HK is not registered as a broker-dealer in the United States and its products and services are not available to U.S. persons except as permitted under SEC Rule 15a-6.
• The document is directed only at "Relevant Persons" as defined by UK financial regulations and is not for general public distribution.