SINGAPORE (Aug 21): CIMB Research is keeping its “add” call on China Jinjiang Environment (CJE) with an unchanged target price of $1.10, despite lowering its earnings per share (EPS) forecasts.
The research house is trimming China Jinjiang’s FY17-FY19F EPS by 1.8%, 2.2%, and 2.0%, respectively.
CIMB analyst Keith Li says this is to adjust for its new project completion schedule.
“We assume the construction of CJE’s new projects to be spread out more evenly over the three years, [compared to] front-loaded previously,” says Li in a report on Friday. “We also lower our VAT rebate estimates to factor in the new accounting treatment.”
However, Li expects the negatives to be partly offset by stronger revenue growth from technical and management services.
In addition, its waste-to-energy (WTE) portfolio is growing rapidly, increasing by more 15.6% in the last three months to 57,311 tonnes per day. Four more projects under construction are expected to contribute an additional capacity of 4,500 tonnes per day, while three more projects are due to start construction in the second half of 2017, and another two projects are awaiting government approvals.
At the same time, it is also expanding overseas. “CJE is expanding to Asian markets to capture the rising demand for waste treatment there,” says Li.
The group recently secured its third WTE project in India, bringing its total capacity in the country to 3,271 tonnes per day.
In addition, CJE is looking to expand into new markets.
“CJE is actively looking for opportunities in Indonesia and set up subsidiaries there recently. We expect positive news regarding its Indonesia ventures soon,” Li says.
CJE in 2Q17 posted a 10% net profit growth to RMB 168.3 million ($34.4 million), on the back of a 16.4% increase in revenue. While this brought 1H17 net profit to just 42% of CIMB’s full-year forecast, the research house says this is in line with expectations.
“We anticipate stronger earnings in 2H17F from the two newly-commissioned WTE projects ramping up and another four WTE projects starting operations,” says Li.
“In our view, the rapid growth of CJE’s WTE portfolio in China and ongoing expansion overseas will strengthen its market leadership position and support earnings growth ahead,” he adds.
As at 12.40pm, shares of China Jinjiang are trading flat at 79 cents.
