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27 Feb, 2020 (Thursday)

China Everbright Greentech (1257) is principally engaged in the businesses of integrated biomass utilisation, hazardous and solid waste treatment, environmental remediation, solar energy and wind power. As of 31 December 2019, the Group had 108 environmental protection projects, including 48 integrated biomass utilization projects, 51 hazardous and solid waste treatment projects, 7 solar energy projects and 2 wind power projects in operation. For the financial year ended 31 December 2019, the Group `s revenue amounted to approximately HK$9.279 billion, an increase of 33% over 2018. Profit attributable to shareholders was approximately HK$1.621 billion, 22% more than that recorded for 2018. Basic earnings per share increased 22.4% to HK78.48 cents. Currently share price is equivalent to about 5.7 times historical P/E. (I do not hold the above stock)
Buy-in Price: $4.35, Target Price: $5.00, Cut Loss Price: $4.10

ND PAPER(2689)
The company released its interim results, with gross profit of approximately RMB 4,917.8 million, an increase of 3.4% over the same period last year. Gross profit margin increased from 15.7% to approximately 17.1%. Operating profit was approximately RMB3,338.5 million, a decrease of 2.7% from the same period last year. Operating profit margin increased from 11.3% in the same period last year to approximately 11.6% in the current period. The total designed annual production capacity of papermaking is 16.47 million tons; the total designed annual output of pulping (recycled pulp and wood pulp) is 850,000 tons; the total designed annual output of downstream packaging plants is 1 billion square meters. In terms of marketing strategy, the newly launched "River Dragon" more effectively expands the coverage of the low-end and mid-end markets. The company plans to increase annual production capacity of 500,000 tons and 600,000 tons of packaging paper in Hebei and Dongguan in the first quarter of 2020, and increase annual production capacity of 550,000 tons of packaging paper in Malaysia by the end of 2021. After the completion of the above expansion projects, the company`s total designed annual paper production capacity will further increase to 18.1 million tons.
Buy-in Price: $8.60, Target Price: $9.70, Cut Loss Price: $7.50

Fukuda Denshi Co., Ltd (6960)
Founded in 1939. Principal business is the manufacture and sale of medical electronic equipment. Operates four business segments, namely the Physiological Diagnostic Equipment segment, Patient Monitoring Equipment segment, Medical Treatment Equipment segment and the Consumables and Other Products segment. Strong in respiratory and circulatory systems, and leads the domestic market share for electrocardiographs.For 3Q (Apr-Dec) results of FY2020/3 announced on 31/1, net sales increased by 5.8% to 95.345 billion yen compared to the same period the previous year, and operating income increased by 11.7% to 9.162 billion yen. Sales increased across three business segments except for the Medical Treatment Equipment segment. While the revision of medical fees is expected to hit medical institutions hard, the need for efficient and high-quality medical services has boosted company's performance.For its full year plan, net sales is expected to increase by 0.9% to 131.0 billion yen compared to the previous year, and operating income to increase by 0.4% to 12.7 billion yen. On 12/2, it was reported that severely-ill patients, among people infected on the ¡§Diamond Princess¡¨ cruise ship where mass infection of the novel coronavirus had occurred, were receiving intensive care via ventilators at the hospitals where they were sent to. Company has a high reputation with regards usage of artificial respirators. It is therefore likely that demand for its respirators will increase in the future.Target Price : 7,552 yenBuy Price : 7,000 yenCut-Loss : 6,680 yen

CANVEST ENV (1381.HK) - Relevant policies issued, sector with high certainty

Event Update

On January 20, 2020, the Ministry of Finance, the National Reform Commission and the National Energy Administration jointly issued "Several Opinions on Promoting the Healthy Development of Non-aqueous Renewable Energy Power Generation" and "About Printing and Distribution Notice of the "Administrative Measures for Renewable Energy Electricity Price Additional Funds", the "Opinions " pointed out that the current subsidy method should be improved to settle expenditures and reasonably determine the scale of new subsidy projects; fully guarantee the continuation of policies and reasonable incomes on existing projects. For the renewable energy power generation projects that have been approved (recorded) in accordance with regulations, all units have been connected to the grid, and reviewed and included in the subsidy list, the central government subsidy quota will be determined based on reasonable utilization hours. For existing projects that have been voluntarily converted to parity projects, the finance and energy authorities will provide policy support in terms of preferential payment of subsidies and the scale of new projects. Subsequently, on February 6, the National Development and Reform Commission issued the "Notice on Implementing Several Opinions on Promoting the Healthy Development of Non-aqueous Renewable Energy Power Generation and Accelerating the Compilation of Medium- and Long-Term Special Plans for Domestic Waste Incineration and Power Generation." It requires the compilation of special mid-to-long-term plans for domestic waste incineration and power generation, and prepare them before March 31, 2020. "Notice" pointed out that the national renewable energy price supplementary subsidy funds are preferentially used for projects included in special planning. For those provinces (autonomous regions and municipalities) that is not received a special plan by development and reform commissions before March 31, 2020, in principle, the subsidy funds needed for new domestic waste incineration power generation projects should be settled by the provinces (autonomous regions and municipalities) where they are located.

It's believed that electricity price subsidies, as an important part of project investment returns, have made great contributions to cultivating high-quality companies, promoting technological progress, and promoting industrial development. But at the same time, due to the amount of waste treatment guarantee and the price adjustment clauses of the treatment service fee when the project contract is signed, the company has a certain bargaining power, which can offset the impact of the national subsidy and decline to a certain extent, and maintain corporate profits. Refining management of single project, improving operating efficiency while reducing operating costs, bring synergistic effects between projects, and sharing fixed costs, will also be an alternative development direction for waste incineration enterprises. According to statistics from the data center of the E20 Research Institute, from January to December 2019, China has released more than 150 waste incineration projects with a total investment of more than 58 billion RMB. We believe that although the suspension of construction projects will have a negative impact on enterprises due to the epidemic situation in early 2020, the stability of operating projects and the increase in the requirements for waste disposal by the epidemic will also benefit the relevant sectors.

According to the company's disclosure, on January 20, 2020, the company's subsidiary, Canvest Kewei, had obtained the PPP concession right for Yingkou WTE Plant in Yingkou City, Liaoning Province. The total daily municipal solid waste processing capacity would be 2,250 tons. The Yingkou WTE plant will be constructed in two phases, of which the processing capacity of the first phase is 1,500 tons and the processing capacity of the second phase is 750 tons. The garbage disposal fee is expected to be RMB 66 per ton, while the construction cost is approximately RMB 50 to 60 per ton. The company's total processing capacity is currently estimated to be approximately 42,680 tons, and the processing capacity has been steadily increased.

Maintain ¡§BUY¡¨ investment rating

We are still optimistic about the performance of WTE companies in 2020, and the issuances of related policies have also alleviated investors` concerns about the decline of the country subsidies. With company's high-quality projects in hand and cooperation with SIIC, and through the support of policies such as the Yangtze River Delta development plan and the Yangtze River Protection, it is expected the company would have a stable performance in 2020. We fine-tuned the model and revised TP to HKD 5.06, corresponding to PE of FY19/FY20/FY21 14.20x/12.13x/10.26x, with a +34.31% potential increase from the current price (HKD3.77 as of February 25, 2020), maintaining "Buy" investment rating.


Fail expectations of project progress; policy risk of electricity price allowance; fail expectations of acquisition of new projects


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Recommendation on 27-2-2020
Price on Recommendation Date$ 3.770
Suggested purchase priceN/A
Target Price$ 5.060
Writer Info
Leon Duan
(Research Analyst)
Tel: +852 2277 6515

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