粤丰环保(1381.HK):New+solid+waste+treatment+types+as+next+catalyst

机构:交银国际评级:BUY目标价:5.81港元FY17 net profit maintained robust growth of 41% YoY: FY17 net profit came in at HK564m, up 41% Y

机构:交银国际

评级:BUY

目标价:5.81港元

FY17 net profit maintained robust growth of 41% YoY: FY17 net profit came in at HK564m, up 41% YoY, in line with the profit alert. This was slightly lower than our forecast of HK$589m, due to (1) slower recognition of construction revenue in 2H17 (-17% HoH); and (2) overall interest expense being 23% ahead of our expectation. Yet, operational revenue in 2H17 was 9.4% better than our estimation, which helped to partially offset the aforementioned factors. Operational GPM dropped slightly to 51.4% in FY17 (vs 53.4% in FY16) due to higher maintenance costs and environmental expenses.   

Targeting at least 7kt contract capacity in 2018: During the results presentation, management stated the target of 30% YoY growth in contract capacity in 2018E, which translates into >7kt in contract capacity (vs 7.6kt gain in 2017). However, management expressed that it will not be easy to gain another 30% YoY growth in contract capacity in 2019E due to higher base. Regarding existing projects, the Zhongshan project (under O&M agreement) is likely to kick start the second-phase expansion. We do not rule out the possibility that Canvest could form a JV with the project owner to develop this project. 

 Another comprehensive solid waste treatment company in the making: Apart from consistent growth in WTE contract capacity, management also revealed their intention to invest in areas related to WTE. These include ashes/slag treatment, solid waste collection & transportation service and sludge treatment, which should bring synergies with Canvest’s current focus in WTE projects. Management expects such new types of solid waste treatment projects to materialize and bring contribution to Canvest this year.     

New business development as major catalyst; maintain Buy: We adjust our 2018/19E earnings by -0.8%/-2.4% after fine-tuning operational data and project pipeline, as well as moving Jianyang project to JV level (not consolidated). Net profit CAGR during 2017-20E should reach 25% under our estimation. Pegging 18x forward P/E (unchanged), we reset our TP to HK$5.81 (from HK$5.86). We believe Canvest’s potential investment in new types of solid waste treatment could be a major catalyst. Maintain Buy.   

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