20150316-法国巴黎银行-Strong_momentum_to_sustain_12页_439kb

Summary of Document Content

Core Content

This document outlines the financial outlook and investment recommendations for Beijing Enterprises Water (BEW) and China Everbright Int'l (CEI) for the years 2014 and 2015, with a focus on the Chinese environmental services sector. It highlights the expectation of strong growth in both companies, driven by government policies and the expansion of infrastructure projects, particularly in waste-to-energy (WTE) and waste water treatment (WWT). The report also discusses valuation metrics, financial performance, and the rationale behind maintaining a BUY rating on both stocks.

Main Points

• 2014 Earnings Outlook:

  • BEW is expected to report 51% y-y earnings growth, aligning with the Bloomberg consensus.
  • CEI is expected to report 23% y-y earnings growth, which is 6% below the Bloomberg consensus due to conservative assumptions on construction revenue and operational utilization.

• New Order Momentum:

  • Both companies exceeded initial new order expectations in 2014:
    • BEW secured 4-5mt of new WWT orders, surpassing the 2-3mt consensus.
    • CEI secured 11,300 tonnes/day of new orders, surpassing the 4,000 tonne/day consensus.
  • The report anticipates continued strong new orders in 2015 due to the need to meet the 12th Five-Year Plan (FYP) targets and increased government support for public-private partnership (PPP).

• Investment Recommendations:

  • The sector is viewed as IMPROVING, with BUY ratings on both BEW and CEI.
  • CEI has an updated target price (TP) of HKD14.59, up from HKD13.98.
  • BEW has a revised TP of HKD5.94, down from HKD6.75, due to a higher beta assumption and weaker investor sentiment.

• Valuation Metrics:

  • Both companies are trading near their historical average P/E levels, but are expected to outperform due to ongoing growth and favorable policies.
  • BEW and CEI are expected to benefit from market consolidation and increased demand for environmental services.

• Sector Growth Drivers:

  • Government support and favourable policies are expected to drive top-line expansion and profitability improvement.
  • The sector is transitioning from a quasi-public institution to a strategic industry for economic growth.
  • WWT is fragmented, with 49% of capacity still controlled by local governments, likely to be transferred to professional players.
  • WTE is expected to grow significantly due to rising urbanization and increased adoption of WTE as a treatment method.

Key Information

• WWT Capacity Growth: Expected to catch up with the 12th FYP targets, with market consolidation opportunities.
• WTE Capacity Growth: Projected to increase from 85,000 tonnes/day (2010) to 240,000 tonnes/day (2015) and 440,000 tonnes/day (2020).
• Investor Sentiment: Adjustments in target prices reflect changes in investor perception, particularly for BEW following its investment in Jincai Holdings.
• Financial Performance:
  • BEW is expected to see significant revenue growth, especially in sewage treatment services and construction contracts.
  • CEI is projected to expand through WTE and alternative energy segments.
• Valuation Ratios:
  • BEW has a recurring P/E of 31.3 in 2014 and is expected to decrease to 21.7 in 2015.
  • CEI has a recurring P/E of 34.9 in 2013 and is projected to be 31.3 in 2014, with a target price of HKD14.59.

Financial Highlights

• BEW:

  • Revenue expected to grow from HKD9,740m (2014E) to HKD12,727m (2016E).
  • Operating EBITDA is projected to increase from HKD2,551m (2014E) to HKD4,179m (2016E).
  • Recurring EPS is expected to rise from HKD0.19 (2014E) to HKD0.29 (2016E).

• CEI:

  • Revenue expected to grow from HKD5,810m (2014E) to HKD17,710m (2016E).
  • Operating EBITDA is projected to increase from HKD2,647m (2014E) to HKD5,662m (2016E).
  • Recurring EPS is expected to rise from HKD0.36 (2014E) to HKD0.74 (2016E).

Conclusion

The document emphasizes the strong growth potential of the environmental services sector in China, particularly for BEW and CEI, due to government support, PPP initiatives, and market consolidation. Despite some conservative assumptions, the outlook for both companies remains positive, with BUY ratings and target price adjustments reflecting their growth trajectory and market position.