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CANVEST ENV (1381 HK) - Recent wins reaffirm execution, worst case priced in

作者: Eric SIU,Tommy WONG
時間: 2019年12月20日
重要性: 一般報告
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摘要: Report title:CANVEST ENV (1381 HK) - Recent wins reaffirm execution, worst case priced in
Analyst:Eric SIU,Tommy WONG
Report type:Company
Date:20191220
[Summary]

■ Three project wins in past few weeks help secure 2019 target. Explore more opportunities in Yangtze River Delta in future
■ 2020 operating capacity planned to increase 51% YoY reaching >25ktpd, vs 13% growth in 2019, to boost net cash flows
■ Central government subsidy collection downside risk factored in; Maintain BUY, TP unchanged at HKD4.7
Cooperation with SIIC continues with 2nd project win
Canvest has secured another batch of 4.8ktpd projects since its 1H19 results. With this addition, Canvest’s total capacity secured in 2019 reached over 12ktpd. Within this newly added batch, there is a 3ktpd WTE project in Shanghai won by China Baowu Group and the JV formed this August between Canvest and SIIC Environment (807 HK, NR). The waste treatment fee for the project is expected to be >RMB200/tonne, which is higher than its existing operating projects (i.e. RMB80-110/tonne). Canvest plays a minority role with an 18% equity stake. Leveraging this experience and relationships, Canvest plans to explore more opportunities within the Yangtze River Delta region.

Acceleration in projects completion to catch deadline
The company targets to have 1.9ktpd of new projects (Xinfeng, Beiliu Phase II and Xinyi Phase I and II) commence operation by the end of this year or early next year. Seeing more certainty in receiving central government subsidy for projects connected to grid before end-2020, Canvest plans to have another 8.5ktpd of projects commence operation by then, which is a sharp acceleration in the increase in capacity with 3.5ktp more than our previous forecast in the middle of the year. According to management, its CAPEX is expected to reach HKD2bn spread across 2019-2021.

Maintain BUY; Worst case likely factored in
FY19 forecasts are largely unchanged, and we raise our FY20-21 net profit by 10-14% due to acceleration in operating capacity and construction work. We keep TP unchanged with mid-long term cash flows projection softer due to policy uncertainty. We estimate its 2019E-2021E net profit CAGR to reach 20.4%. We also estimate a more bearish DCF scenario where 15% of cash flows are reduced due to elimination of central government subsidy in perpetuity, which results in a valuation of HKD3.47, hence worst case has been factored in, in our view.

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