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Kangda Env (6136.HK) - More new projects are expected

Monday, October 19, 2015

16479

Kangda Env(6136)

Recommendation on 19 October 2015
Recommendation	BUY
Price on Recommendation Date	$2.630
Target Price	$4.050

Weekly Special - 1810 Xiaomi

Business results kept stable

The Company recorded an income of RMB 785 million in 2015H1, down 9.18% yoy; gross profit amounted to RMB 371 million, up 19.31%yoy; while gross profit margin recorded 47%, which increased 11 ppts compared to the same period last year. The drop of income and the increase of gross profit margin was mainly due to the yoy decline of income from construction business in H1. The net profit attributable to shareholders amounted to RMB 137 million, up 11.08% yoy. Basic earning per share is RMB 7 cents. The Company's business basically kept stable.

More new projects expected in H2

The Company's capacity from new projects was merely 50,000 tons and the management pointed out that the total capacity of new projects which would certainly be launched at the moment amounted to approximately 350,000 tons; while new projects which would definitely be launched marked 400,000 – 500,000 tons; and new projects which were not too certain for launching marked about 500,000 tons. Yearly target for new projects is 800,000 tons. New projects have more pressure for orders in H2 and the new capacity brought by new projects is drawing attention from market.

Expand towards business areas with higher profitability

The Company currently is expanding business in new areas including wastewater treatment in urban regions, sludge treatment as well as watershed management. Among these, business development of wastewater treatment in urban regions would focus on certain areas in order to assure yield return, and the Company expected the yield return of this new business should be higher than the other business segments. Market potentials for sludge treatment is huge and the yield return is also higher. The Company can enhance the overall yield return on business through expansion towards new business areas.

Valuation

The H1 business result of the Company was steady, which was lower than our expectation. We have to keep an eye on the development of new projects, and also the negotiations and bargaining between the Company and the authority after the change of refunding policy of value-added tax. We maintain the target price of HKD 4.05, and maintain the rating of “Buy”. (Closing price as at 15 Oct 2015)

Financials

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