Company Update

From September 2019, the company has obtained the following waste incineration power generation projects: 1. On September 10, Canvest Kewei Environmental Investment (Guangdong) Company Limited, a wholly-owned subsidiary of the company, was awarded the concession right in relation to the waste-to-energy process plant concession project located in Wuchang City, Harbin City, Heilongjiang Province, the total daily solid waste processing capacity of the Wuchang WTE Plant shall be 600 tonnes. 2. On November 26, Kewei acquired the entire equity interest of Zhongshan Guangye at a total consideration of RMB340 million. Zhongshan Guangye owns the concession right to operate the Zhongshan WTE Plant in Zhongshan, Guangdong. The daily municipal solid waste processing capacity of the Zhongshan WTE Plant is 1,040 tonnes. In 2018, the revenue of Zhongshan Guangye was RMB 98.31 million, profit after income tax was RMB 5.9 million, net asset value as at 31 December 2018 was RMB 210 million. The company expects that the acquisition will help business development in the Guangdong-Hong Kong-Macao Greater Bay Area. 3. On December 6, Kewei was awarded the concession right in relation to the circular economy industrial park phase I of waste-to-energy process plant and kitchen waste treatment public-private-partnership (“PPP”) project located in Jingjiang City, Taizhou City, Jiangsu Province. The total daily municipal solid waste processing capacity of the Jingjiang WTE Plant shall be 1,200 tonnes. The Jingjiang WTE Plant shall be constructed in two phases, of which the Processing Capacity of phase I shall be 800 tonnes and phase II shall be 400 tonnes.

As of 22 August 2019, the operating, secured, announced and under management agreement daily MSW processing capacity of 25 projects was 36,590 tonnes. When taking into account of the newly added waste incineration power generation projects since September 2019, the company's total processing capacity so far is about 39,430 tonnes, and the annual new processing capacity is about 10,390 tonnes, an increase of 35.8% YoY, which has completed the target of the company (more than 10,000 tonnes new capacity and 30% growth YoY).

In addition, Johnson Holdings (1955.HK) was successfully listed on the Hong Kong Stock Exchange on October 16, 2019. Johnson Limited is a leading environmental health service provider that provides a wide range of environmental health services in Hong Kong. We are still optimistic about the possible cooperation between the company and Johnson in the Guangdong-Hong Kong-Macao Greater Bay Area on project level.

Yangtze River Delta Regional Integration Development Plan Issued, Promising in Cooperation with SIIC

On December 1, 2019, the Central Committee of the Communist Party of China and the State Council issued the "Outline of the Yangtze River Delta Regional Integration Development Plan", and the development of the Yangtze River Delta regional integration development has become a national strategy. The planning scope covers the whole area of ​​Shanghai, Jiangsu Province, Zhejiang Province, and Anhui Province (with an area of ​​358,000 square kilometers). The planning period is up to year 2025, and the outlook period is up to year 2035. The Plan calls for accelerating the construction of infrastructure such as garbage and sewage collection and treatment covering urban and rural areas, promoting the centralized disposal of garbage and sewage, and basically establishing a coordinated ecological and environmental supervision system, and further improving the quality of the regional ecological environment. On the other hand, with the promotion of the waste separation and treatment policy, it will directly lead to the increased demand for sanitation equipment and services for front-end classified disposal, classified collection, and classified transportation. By the end of 2020, 46 key cities are expected to be basically completed domestic waste sorting and processing system.

On August 21, 2019, Canvest Environmental Investment, an indirect wholly-owned subsidiary of the company, entered into a joint venture agreement with the shareholders of Shanghai Industrial Environmental Technology (a direct wholly-owned subsidiary of SIIC Environment) to set up a joint venture. The joint company will focus on the investment, construction and operation of waste incineration power projects in the Yangtze River Delta. We expect that with the establishment of a project company with SIIC, the company will further strengthen the search for cooperation opportunities in the Yangtze River Delta region, and with the issue of the Yangtze River Delta development plan and the new regulations for "the most stringent" waste sorting further promoted, though the amount of waste incineration might be reduced, but it is believed that it will also promote the company to continuously adjust its business model, further strengthen cost control, and actively seek the integration of the industrial chain, which is beneficial to the company's long-term development.

Maintain “BUY” investment rating

We maintain a TP of HKD 5.07, corresponding to FY19/FY20/FY21 14.21x/12.14x/10.26x PE with a +52.16% potential upside compared with CP of HKD 3.33 as of December 6, 2019, we maintain “BUY” investment rating.

Risk

Fail expectations of project progress; policy risk of electricity price allowance; fail expectations of acquisition of new projects

Financials

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