SINGAPORE (March 29): UOB KayHian is starting coverage on CITIC Envirotech with a “buy” recommendation and target price of $1.10 given the group has a proven track record in water treatment offering superior technological know-how.
In a Wednesday report for retail investors, lead analyst Edison Chen says China’s annual water shortage has reached 50 billion cubic metres in 2016 with two-thirds of its cities experiencing varying levels of shortages.
No wonder China’s latest 13th Five-Year Plan has made water and the environment a priority with action plans like “Water 10” with new water pollution laws pending.
Beijing will also start 15 new major water conservation projects this year and that total investment in major water projects under construction should exceed RMB 900 billion ($182 billion) before the year ends.
Water infrastructure investments are forecast to grow at 9% with most of the investments going into the wastewater segment.
These stricter environmental goals open tremendous opportunities for environmental companies with a technological edge.
“With this momentum, CITIC Envirotech’s management has targeted $1 billion worth of projects for 2017,” says Chen.
This should grow the company’s orderbook and help maintain its steadily increasing order win momentum to achieve a new high in order growth in 2017.
Thanks to its technology and focus on industrial wastewater, CITIC Envirotech also boasts margins superior to its peers.
CITIC Envirotech is guiding for a 15% IRR for its industrial waste water and new growth businesses compared to an 8% IRR for a typical municipal water treatment project.
Shares of CITIC Envirotech are up 2 cents at 84 cents.
