SINGAPORE (Nov 17): Phillip Capital is maintaining its “buy” call on China Everbright Water with a higher target price of 59 cents.
Phillip’s valuation is based on a higher average 12-month forward PER of 17.4 times which is in line with regional peers.
China Everbright expects macro conditions in China over next five year to continue to favour the group.
It expects to achieve the target of 1,000 million tonnes daily designed capacity under China’s 13th Five Year Plan. Meanwhile, it will strengthen the technology development and tap into wastewater treatment (WWT) market in rural areas in the foreseeable future.
“We believe that the macro conditions in the next five year will continue to favour China Everbright,” says analyst Chen Guangzhi in a Thursday report.
In 3Q17, China Everbright secured six new projects with total investment of RMB1.8 billion ($368,000) with a designed daily water treatment capacity of 130,000 tonnes. The group managed to break into the market in southern China for the first time by securing Nanning Shuitang River Integrated Restoration project which is valued at RMB1.47 billion.
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“9M17 revenue and net profit were in line with our expectations,” says Chen.
Among the newly-secured projects in 3Q17, three projects started construction immediately within this quarter. The 9M17 rampup of daily designed capacity registered stood at 500,000 plus tonnes. Along with the seven more projects, the group level tariff rose by 11% year to date.
In its outlook, China Everbright says the prevailing public private partnership (PPP) model in China’s utility sector bears certain risks. Firstly, quite a few projects sealed previously have yet to be implemented. Secondly, some local governments’ ability to meet their obligations is weaker due to poorer fiscal conditions.
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As of Sept 17, China Everbright operates three industrial WWT projects. Though the rate of return is higher than household WWT, they bear higher risks including the technical and the operational.
In a Nov 16 report, China Everbright says the composition of industrial waste water is so complicated that this requires complex processing techniques. Operationally, industrial waste water discharge volume is subject to sector cyclical development. Hence WWT volume is volatile.
Shares in China Everbright are trading at 44 cents or 17.4 times FY17 earnings.
