Research Report

Author

段煉先生(Leon Duan)
分析師

本科畢業於山東大學理科,碩士畢業於香港中文大學理學院及香港城市大學商學院,擅長從行業前景及公司基本面進行分析,主要負責醫藥及環保板塊的研究。

Bachelor Degree in Shandong University of Science, and Master Degrees in Chinese University of Hong Kong Faculty of Science and City University of Hong Kong College of Business. Currently cover Pharmaceuticals and Environmental Protection sectors, good at combining analysis with industry prospects and company fundamentals.


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CANVEST ENV (1381.HK) - China's Leading WTE Enterprise, Strong Growth in Production Capacity

Wednesday, August 21, 2019 Views1112
CANVEST ENV(1381)
Recommendation on  21 August 2019
Recommendation BUY
Price on Recommendation Date $3.540
Target Price $5.080

Investment Summary

China's leading waste-to-energy enterprise, manager and operator, has a strong growth in waste treatment capacity

The company which was listed on the Main Board of HKSE in December 2014, is a leading waste-to-energy (WTE) enterprise in China. The main business of the company focuses include build, design and operate WTE plants, and it also acquire and upgrade WTE projects to achieve optimal performance. As of August 2019, the company is managing 25 WTE projects, including 12 projects in operation and 13 projects under construction and planning. As at 31 December 2018, the operating, secured, announced and under management agreement daily MSW processing capacity of the 19 projects was 29,040 tonnes, from 6,900 tons/day in 2014 to a compound annual growth rate of 33.3% in 2018, the company's goal for the next few years is to maintain a contract capacity growth rate of more than 30% per year.

China's waste incineration power generation market has great potential for development

From 2002 to 2017, the volume of MSW in China had grown at a CAGR of 3.7%, MSW volume reached to 210.34 million tons in 2018. From 2002 to 2017, the volume of MSW in Guangdong had grown at a CAGR of 4.07%, which was higher than the national average. In 2017, the total volume of MSW in Guangdong reached to 26.44 million tons, or 12.57% of China's total MSW volume. In 2015, the total volume of MSW in China reached 758,300 tons per day. It is estimated that by 2020, the total volume will reach 1,104,900 tons per day. In 2015, MSW to be treated by incineration reached 235,200 tons per day, accounting for 31% of the total MSW treatment methods. It is estimated that the incineration capacity will be 591,400 tons per day by 2020, and the incineration treatment rate is expected to reach 54%.

Self-built projects improve quality, extension projects boost development

The company currently has 12 projects in operation, 10 of which generating a total of 2.05 million MWh of electricity, selling a total of 1.8 million MWh of power, accounted for average of 88% of power sales; a total designed processing capacity was 4.16 million tons, actual disposal of MSW was 5.02 million tons, and the utilization rate reached 109%. The average waste treatment fee for 11 operating projects (excluding Xinfeng WTE plant) is RMB 97.7/tons, while the average waste treatment fee in Guangdong Province is RMB 110/ton, which is better than the average level in the industry. Moreover, the current average daily MSW treated capacity of the company's projects is about 1,500 tons/day, which is higher than the industry average. We believe that higher waste treatment fees and project scales ensure the high quality of the company's projects and also ensure the steady growth of the company's future operating income.

TP of HKD 5.08 and investment rating of “BUY”

Based on our residual income valuation model, assuming the cost of equity is 6.82% and resistance factor is 0.20, we give a TP of HKD 5.08 with investment rating of “BUY”, corresponding to FY19/FY20/FY21 13.94x/12.11x/10.23x PE with a 43.53% potential upside compared with CP of HKD 3.54 as of August 16, 2019.

Industry Analysis

Overview of MSW in China and Guangdong Province

Municipal solid waste (MSW) is a waste type consisting of daily solid items that are produced from urban residents` daily life activities and services, as well as other solid waste deemed by the authorities as municipal waste, including household waste, commercial waste, waste from trading markets, streets and other public places, as well as non-industrial waste from institutions, schools, factories, etc. China's large population inherently results in the generation of massive amount of MSW. Factors such as increasing rate of urbanization, robust growth in GDP and increasing affluence and consumer spending, result in an increase in the generation of MSW.

From 2002 to 2017, the volume of MSW in China had grown at a CAGR of 3.7%, MSW volume reached to 210.34 million tons in 2018. Among this, Guangdong has the largest GDP and population in China by province and maintains its rapid growth in urbanization. From 2002 to 2017, the volume of MSW in Guangdong had grown at a CAGR of 4.07%, which was higher than the national average. In 2017, the total volume of MSW in Guangdong reached to 26.44 million tons, or 12.57% of China's total MSW volume.

According to Ministry of Ecology and Environment, in 2017, 202 large and medium-sized cities produced 201.094 million tons of garbage, with a disposal volume of 200.843 million tons and disposal rate of 99.5%. In 202 large and medium-sized cities, the largest amount of MSW generated is Beijing, with production volume was 9.018 million tons, followed by Shanghai, Guangzhou, Shenzhen and Chengdu, with production volume was 8.995 million tons, 7.377 million tons, 6.04 million tons and 5.413 million tons, respectively. And the largest amount of MSW generation province is Guangdong. The total amount of MSW generated by top 10 cities was 56.858 million tons, accounting for 28.2% of 202 cities.

The main mode of MSW innocuous treatment

The innocuous treatment of MSW is to dispose of municipal solid waste using advanced waste management technologies and methods to reduce negative environmental impact, and at the same time facilitate material recycling and reuse. Primary methods of this process include landfilling, composting and incineration.

-Landfilling: is to dispose of waste in a landfill involves burying the waste in a designated lot of land with post-treatment methods such as anti-leaking, leveling and compaction. A modern landfill usually has designs to treat gas, liquid leachate and vermin and prevent polluting underground water.

-Composting: is to stack waste into a pile and let it ferment at constant 70°C. Microbes inside the pile would decompose the organic matter into mulch or compost. After composting, waste would be turned into hygienic, odorless humus. This method is not only the solution to waste disposal, but also a way of resource recovery. However, a large compost pile would cause damages to the soil and underground water in the long term, so an ideal compost pile should not be too large.

-Incineration: is to combust organic matter in waste and reduce the volume of waste. Incineration and other high-temperature waste treatment systems are described as thermal treatment methods. Incinerators convert combustible waste materials into ash, steam and gas. Ash produced by incineration is mostly inorganic matter in the forms of solid residue or fine particles. Incineration plants need to remove gaseous pollutants and particulates from flue gas produced before emitting it to the atmosphere, while the rest of residual product can be used for other means such as building materials or can be disposed of in a landfill. The heat produced in the process of incineration can be used to generate electricity.

Within the primary waste disposal methods, incineration has the following advantages:

-Innocuous Treatment: incineration can greatly decompose all hazardous substances in waste through high-temperature combustion. Meanwhile, incineration can reduce the impact of final disposal on the environment, such as liquid leachate and greenhouse gas generated by landfilling and composting.

-Reduce the Volume of Waste: the incineration process can reduce the volume of waste by 95% and the weight by 75%-85%.

-Resource Recovery: The heat from the incineration of waste can be used to generate electricity or supply heating. The process can be operated continuously without interference by the weather.

-Occupy smaller area of land: a waste incineration plant covers a relatively small area of land and therefore can be built near the urban area. With increasingly limited new land supply, particularly in China's eastern and coastal regions and metropolitan areas where land prices are soaring, a waste incineration project has clear advantages in terms of land cost.

At present, domestic incinerators mainly include moving grate furnaces and fluidized bed technologies. On 16 May 2014, the Ministry of Environmental Protection and the General Administration of Quality Supervision, Inspection and Quarantine of China jointly issued the new “Standard for Pollution Control on the Municipal Solid Waste Incineration” (GB18485-2014) which requires new WTE plants constructed on or after 1 July 2014 and existing WTE plants to comply with the new standard by 1 July 2014 and 1 January 2016, respectively. Guangdong province suggested that waste incineration should adopt a well-developed technology with moving grates as the foundation. It is also encouraged to choose incinerators carefully, for the uses of incinerators below standard are straightly prohibited.

Development of MSW treatment in China and Guangdong Province

Driven by the “Plan on Urban Household Waste Treatment Facilities Construction for the 13th Five Year Plan Period” (“13th Five Year Plan”), the non-hazardous MSW treatment has maintained a strong growth momentum. According to the National Bureau of Statistics of China, the innocuous treatment rate in China and Guangdong Province has increased year by year. In 2017, the total MSW non-hazardous treatment amount in China was 210.34 million tons, achieving an innocuous treatment rate of 97.74%; the total MSW non-hazardous treatment amount in Guangdong was 25.91 million tons, with a non-hazardous treatment rate of 97.98%.

According to the Ministry of Housing and Urban-Rural Development of China, China is committed to the construction of municipal facilities for waste disposal, and the investment in urban MSW construction has increased year by year. From 2001 to 2017, the CAGR was 15.6%. By 2017, the investment completion amount reached RMB 24.083 billion.

Market overview of WTE plants in China

In 2015, the total volume of MSW in China reached 758,300 tons per day. It is estimated that by 2020, the total volume will reach 1,104,900 tons per day. In 2015, MSW to be treated by incineration reached 235,200 tons per day, accounting for 31% of the total MSW treatment methods. It is estimated that the incineration capacity will be 591,400 tons per day by 2020, and the incineration treatment rate is expected to reach 54%.

China's average WTE treatment fee is higher in coastal cities. The company's average treatment fee is about RMB 90/ton, which is higher than the market average. As of March 2019, China's operating WTE plants are also concentrated in coastal areas such as Guangdong, Fujian, Zhejiang, Shanghai and Jiangsu.

According to the 13th Five Year Plan, the penetration rate of incineration method in various provinces in China has increased significantly by 2020. Among them, Guangdong has ample room to grow, and the penetration rate of incineration method is expected to reach 67% by 2020.

High barrier to entry in the Chinese WTE industry

According to the Euromonitor Report, the barriers to entry into the Chinese WTE industry are mainly the following two parts:

-High investment costs: the investment for a BOT WTE plant is estimated to be in the range of RMB 3.5 million to RMB 4.0 million per ton, excluding costs for land use rights and other preliminary expenses for land preparation and environmental impact evaluation. A WTE plant with a daily handling capacity of 1,000 tonnes requires more than RMB 300 million investment, and about 50% of which is for equipment. For a BOT WTE plant, paid-up capital is normally 20% to 30% of its total investment, while the remainder can be funded through project financing in the form of term loan.

-Proven track record: The operation of WTE project requires project management expertise and adequate project operation experience, such as the transportation and collection of MSW to WTE plants, generation of electricity and adherence to environmental standard. As such, it is difficult fora new entrant without adequate project experience and management expertise to enter into this market. 

Government policies supporting WTE industry

According to “13th Five Year Plan” and “Opinion on Enhancement of Urban Household Waste-to-Energy Work”, China government has increased investment in MSW treatment. In 2018, the MSW treatment fee was RMB 251.8 billion, construction of MSW treatment plants was RMB 169.9 billion; meanwhile, China has constructed high-standard non-polluted incineration plants, selected better site of incineration plants, well-coordinated to project development, managed and enhanced monitoring of WTE projects, forcing technological upgraded for unqualified WTE plants, and tightened pollutant emission standard.

Additionally, MSW incineration has further penetration of WTE in developed regions, by 2020, national target ratio of urban household waste treatment via incineration will be 53.5%, WTE treatment target set for Guangdong province will be 67% (89,590 tons/day). Meanwhile, expanding the coverage of harmless MSW treatment, by 2020, targeted harmless MSW treatment capacity will be over 1.1 million tons per day, stricter harmless household waste treatment ratio in 13th FYP were also set: municipalities will be 100%, counties will be 80%, towns will >70%, household waste landfill rate in municipals will be 0%; for household waste incineration rate, cities will be >50%, cities in central and eastern regions will be >60%, household waste recycle rate in municipals will be >35%.

Company Analysis

Company Profile

The company which was listed on the Main Board of Hong Kong Stock Exchange in December 2014 (Stock Code: 1381), is a leading waste-to-energy (WTE) enterprise in China with market capitalization over HK$10 billion. The main business of the company focuses include build, design and operate WTE plants, and it also acquire and upgrade WTE projects to achieve optimal performance. As of August 2019, the company is managing 25 WTE projects, with presence in Guangdong Province, Guangxi Zhuang Autonomous Region, Guizhou Province, Jiangxi Province, Sichuan Province, Shandong Province, Shanxi Province and Hebei Province, and the daily MSW processing capacity of total operating, secured and announced projects has reached 36,590 tonnes. Since January 2015, the company has been a constituent of Hang Seng Infrastructure Index, Hang Seng Global Composite Index, Hang Seng Composite Index, Hang Seng Composite Industry Index – Utilities and Hang Seng Composite SmallCap Index. Since December 2016, the company has been one of the eligible stocks for Southbound trading through Shenzhen-Hong Kong Stock Connect. The company was also named one of “China's Most Promising Listed Companies” by Forbes China in 2017.

In 2018, the company successfully expanded the business along the value chain. The company acquired 41% equity interest in Johnson Cleaning Services Company Limited, a well-established cleaning and waste management service company in Hong Kong, acquired 100% equity interest in Dongguan Lujia Environmental Resources Investment Company Limited, which indirectly holds 35% of the right to the first fly ash landfill project in Dongguan and also acquired 100% equity interest in Open Mind Global Limited, which indirectly holds 40% equity interest in Huizhou Zhongzhou Environmental Resources Company (principally engaged in the treatment of bottom ash created from the incineration of waste in China).

Key Business Introduction

The company is a leading WTE provider focusing on the development, management and operation of WTE projects. The main businesses of the company include WTE business and environmental hygiene and related services.

1. Waste-to-energy (WTE) business

As of August 2019, the company is managing 25 WTE projects, including 12 projects in operation and 13 projects under construction and planning. The operating, secured, announced and under management agreement daily MSW processing capacity of the 25 projects was 36,590 tonnes, the operating daily MSW processing capacity of 12 projects (including the project under management) reached 16,790 tonnes.

2. Environmental hygiene and related services

To perfect the business model and in response to the demand from stakeholders, the company further extended its business portfolio to the treatment of fly ash, bottom ash and environmental hygiene business. The company acquired 100% equity interest in Dongguan Lujia in March 2018, it holds a 35% equity interest in Dongguan Xindongyue, which currently owns the first landfill project for fly ash in Dongguan; in 2018, Dongguan Xindongyue processed 130,903 tonnes solidified fly ash. In March 2018, the company acquired 41% equity interest in Johnson, a leading environmental hygiene service provider in Hong Kong. The company entered into an agreement in relation to the acquisition of 100% equity interest in Open Mind in November 2018, it ultimately holds 40% equity interest in Zhongzhou Environmental, which is principally engaged in the treatment of bottom ash created from the incineration of waste in China. Construction of the project was completed and its trial operation commenced in first half of 2019. On 13 December 2018, Yuezhan Intelligent Environmental entered into the sale and purchase agreement of share with independent third parties, pursuant to which Yuezhan Intelligent Environmental acquired 100% equity interest of Sichuan Jiajieyuan at a consideration of RMB 80.0 million (equivalent to HKD 91.3 million); Sichuan Jiajieyuan is principally engaged in the provision of environmental hygiene and related services in China.

In 2018, the revenue of the company was HKD 3.33 billion, with a YoY increase of 38.7%; gross profit was HKD 1.10 billion, with an increase of 34.0% YoY; net profit contributed to owners was HKD 754 million, an increase of 33.7% YoY. By service type, power sales and waste treatment fees segment revenue was HKD 1.56 billion, with a YoY increase of 44.90%, segment gross profit was HKD 749 million, a YoY increase of 34.8%; construction revenue arising from BOT arrangement segment revenue was HKD 1.70 billion, a YoY increase of 34.0%, segment gross profit was HKD 283 million, a YoY increase of 34.0%; finance income from BOT arrangement segment revenue was HKD 65.79 million, a YoY of 25.3%, segment gross profit was HKD 65.79 million, a YoY increase of 25.3%.

Key Business Mode

Before listed, the company was mainly operated two BOO projects (Eco-Tech and Kewei WTE plants), but the operating mode of post-listing construction and M&A projects are mainly BOT projects. The power generation process of the WTE plants of the company are as below:

-Waste reception and feeding: MSW is brought in by waste collection vehicles and weighed at WTE plants, and then transported by waste collection vehicles to the discharge platform, where it is discharged into the storage pool for fermentation. Waste in the storage pool is then transferred by a crane into the feeding system for incineration.

-Incineration: During the incineration process, waste passes through a downward inclined moving grate as it is being incinerated and is continuously turned during incineration to maximize its contact with air to achieve full combustion.

-Heat exchange and power generation: The heat recovery steam generator recovers the heat produced during the incineration process and generates high temperature steam. The high temperature steam drives the steam turbines which in turn drive the generators to produce power.

-Wastewater/flue gases/bottom ash/fly ash treatment: Comprehensive wastewater treatment systems are installed to process leachate and other wastewater produced, according to the national standard. Gases and fly ash generated in the process of incineration will undergo a comprehensive flue gas treatment process before being released through the smokestack.

Currently, the BOO projects of the company include Eco-Tech WTE Plant I & II and Kewei WTE Plant, BOT projects include China Scivest WTE Plant, Zhanjiang WTE Plant, Laibin WTE Plant, Qingyuan WTE Plant, Xingyi WTE Plant, Beiliu WTE Plant, Lufeng WTE Plant, Xinyi WTE plant, Xinfeng WTE Plant, Jianyang WTE Plant and Xuwen WTE Plant. BOT basis is currently the mainstream model in the WTE industry in China.

Investing Highlights

China's leading waste-to-energy enterprise, manager and operator, has a strong growth in waste treatment capacity

The company which was listed on the Main Board of Hong Kong Stock Exchange in December 2014, is a leading waste-to-energy (WTE) enterprise in China with market capitalization over HKD 10 billion. The main business of the company focuses include build, design and operate WTE plants, and it also acquire and upgrade WTE projects to achieve optimal performance. Since January 2015, the company has been a constituent of Hang Seng Infrastructure Index, Hang Seng Global Composite Index, Hang Seng Composite Index, Hang Seng Composite Industry Index – Utilities and Hang Seng Composite SmallCap Index. Since December 2016, the company has been one of the eligible stocks for Southbound trading through Shenzhen-Hong Kong Stock Connect. The company was also named one of “China's Most Promising Listed Companies” by Forbes China in 2017.

The company's performance has maintained steady growth in recent years. In 2018, the company recorded revenue of HKD 3.33 billion, an increase of 38.7% YoY. In 2018, the revenue of four major business segments, namely power sales, waste treatment fees, construction revenue arising from BOT arrangement and finance income from BOT arrangement, accounted for 33.9%, 13.1%, 51% and 2% of the total revenue, respectively. From 2013 to 2018, the company's revenue maintained rapid growth at a compound annual growth rate of 53.51%, and remained at around 40% in recent years. In 2018, the company achieved a gross profit of HKD 1.10 billion, a YoY increase of 34.0%. The overall gross profit margin was 33.0%, a decrease of 1.16% YoY. The slight decrease was mainly due to the lower gross profit margin during the trial operation stage for new plants commencing operation. From 2013 to 2018, the company's compound annual growth rate of gross profit was 40.19%, slightly lower than the growth rate of income. We believe that the company's rapid growth has benefited from the strong support of relevant national industry policies, the company's high-quality projects and the significant increase of company's waste disposal capacity.

Under the 13th Five Year Plan, the Central government promoted the philosophy of “Lucid Waters and Lush Mountains are Invaluable Assets” and committed to build a “beautiful China”. The national target ratio of urban household waste treatment via incineration was raised from 31% in 2015 to 54% by 2020. With this favorable national policy, the company has expanded its WTE business rapidly since listing. Currently, the company has 25 WTE projects, with presence in Guangdong Province, Guangxi Zhuang Autonomous Region, Guizhou Province, Jiangxi Province, Sichuan Province, Shandong Province, Shanxi Province and Hebei Province, and the daily MSW processing capacity of all the operating, secured and announced projects has reached 36,590 tonnes.

As of August 2019, the company is managing 25 WTE projects, including 12 projects in operation and 13 projects under construction and planning. As at 31 December 2018, the operating, secured, announced and under management agreement daily MSW processing capacity of the 19 projects was 29,040 tonnes, from 6,900 tons/day in 2014 to a compound annual growth rate of 33.3% in 2018, the company's goal for the next few years is to maintain a contract capacity growth rate of more than 30% per year.

Self-built projects improve quality, extension projects boost development

The company currently has 12 projects in operation, 10 of which generating a total of 2.05 million MWh of electricity, selling a total of 1.8 million MWh of power, accounted for average of 88% of power sales; a total designed processing capacity was 4.16 million tons, actual disposal of MSW was 5.02 million tons, and the utilization rate reached 109%. In addition, Zhongshan WTE plant began trial operation in the first quarter of 2017, and converted intocommercial operation as a custody agreement project in December 2017. Xinfeng WTE plant started trial operation in January 2019 with a designed daily processing capacity of 800 tons.

The company's project is mainly established in the southern region of China, which temperature is relatively high and conducive to the pretreatment of "wet garbage" winter in the northern area is cold, moisture freezing in the garbage will not be conducive to the separation of moisture and garbage. The higher moisture content, the lower corresponding waste calorific value. In addition, according to the research from Key Laboratory of Clean Energy Utilization of Zhejiang University, the waste calorific value in developed areas is higher, while the content of textiles from the waste is relatively high in Guangdong, which leads to the high value of waste calorific value.

Most of the projects have relatively high waste treatment fees, and the average waste treatment fee for all projects is RMB 90/ton. The average waste treatment fee for 11 operating projects (excluding Xinfeng WTE plant) is RMB 97.7/tons, while the average waste treatment fee in Guangdong Province is RMB 110/ton, which is better than the average level in the industry. Moreover, the current average daily MSW treated capacity of the company's projects is about 1,500 tons per day, which is higher than the industry average. We believe that higher waste treatment fees and project scales ensure the high quality of the company's projects and also ensure the steady growth of the company's future operating income.

In 2018, the company through (i)acquired 41% equity interest in Johnson, a well-established cleaning and waste management services company in Hong Kong; (ii)acquired 100% equity interest in Dongguan Lujia, which held 35% equity interest in the first fly ash landfill project in Dongguan; (iii)acquired 100% equity interest in Open Mind Global Limited, which held 40% equity interest in Zhongzhou Environmental Resources Company, successfully expanded its business. These successful acquisitions enable the company to step into the upstream waste collection business and downstream waste disposal business, helping the company to gain knowledge and experience in the relevant industries of the core waste incineration power generation business. In addition, the company has conditionally awarded Linfen WTE plant concession project and gained foothold in Shanxi Province; equity investment in Zaozhuang Zhongke Environmental Company Limited by way of capital increase, obtained Zaozhuang project and gained foothold in Shandong Province; awarded Mancheng WTE plant PPP project and gained foothold in Hebei Province; awarded Ruili WTE plant PPP project and gained foothold in Yunnan Province. The company has also invested in Shen County WTE plant project of SIHL and officially commenced project level cooperation with SIHL. In the future, the company will develop at a rapid speed through continually acquisitions of high-quality projects.

Financial Forecast and Valuation

Financial Performance

In 2018, the company recorded income of HKD 3.33 billion, representing an increase of 38.72% YoY; realized gross profit of HKD 1.10 billion, increasing by 34.0% YoY; realized gross profit margin of 32.99%, decreasing by 1.16% YoY; realized net profit attributable to owners of HKD 754 million, increasing by 33.69% YoY. From the historical data, the company's overall profit level has generally declined, but it has remained relatively stable in recent years. The gross profit margin has declined from 34.15% in 2017 to 32.99% in 2018. The slight decrease was mainly due to the lower gross profit margin during the trial operation stage for new plants commencing operation.

After the company went public in 2015, the liability-to-asset ratio fell to 52.25%. In recent years, it has been a dynamic trend, and the average overall liability-to-asset ratio has remained at 51.50%. In terms of expense rate, the company's overall expense rate has decreased from 12.18 in 2014 to 6.86% in 2018, which we believe that it was beneficial from the company's effective internal cost control, overall expense has declined gradually year by years.

Financial Forecast

It is estimated that the company's revenue in FY19/FY20/FY21 will be HKD 4.04/4.72/5.58 billion, representing increases of 21.48%/16.91%/18.13% YoY; gross profit will be HKD 1.33/1.56/1.87 billion, representing increases of 21.01%/17.22%/19.96% YoY; net profit attributable to shareholders will be HKD 0.89/1.03/1.22 billion, representing increases of 18.63%/15.13%/18.31% YoY; corresponding EPSs are HKD 0.364/0.42/0.496. As a leading WTE enterprise in China, has table growth in production capacity. We believe that with the company's mature project experience and successful acquisition of quality projects, the company's future performance will continue to grow.

Valuation

Based on our residual income valuation model, assuming the cost of equity is 6.82% and resistance factor is 0.20, we give a TP of HKD 5.08, corresponding to FY19/FY20/FY21 13.94x/12.11x/10.23x PE with a 43.53% potential upside compared with CP of HKD 3.54 as of August 16, 2019, we recommend “BUY” investment rating.

Risk

1. Fail expectations of project progress

2. Policy risk of electricity price allowance

Financials

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