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2 Mar, 2020 (Monday)

Huabao International Holdings (336) has organised its operations into four main operating segments: Flavours and fragrances; Tobacco raw materials; Aroma raw materials; Condiment. The Group established Jiangxi Province Huabao Kongque Food Technology in Yingtan, Jiangxi as the entity for implementing investment project and migrated the complete production operation of Shanghai H&K Flavours & Fragrances to Jiangxi Kongque and commenced production. This will improve the Group's competitive edge in the area of food flavours and achieve better integration of resources and synergy effect for the Group's food flavours business. Separately, the Group completed the Jiangxi Xianghai Biological Technology Phase I Project. Furanone and sulfurol, the core products of the Phase I project, have been put into production. Part of the Jiangxi Xianghai Phase II Project has been completed and it is expected to produce a lot more varieties of aroma raw materials products. The construction for the Phase III Project has also commenced. With the completion of the Jiangxi Xianghai projects, the Group's aroma raw materials business will achieve centralized and large-scale production. (I do not hold the above stock)
Buy-in Price: $3.00, Target Price: $3.35, Cut Loss Price: $2.80

The company announced annual result, the revenue amounted to HK$5.55 billion, representing an increase of 16% YoY. EBITDA increased by 15% YoY. Profit attributable to equity holders of the company for FY2019 was HK$833.48 million, up 23% YoY. Basic earnings per share for FY2019 were HK30.07 cents, indicating an increase of HK4.49 cents over HK25.58 cents in FY2018. The company secured 18 new projects and signed 1 supplementary agreement for existing project, including 1 raw water protection project, 13 waste water treatment projects, 3 reusable water projects, 1 waste water pipeline network project, and 1 supplementary agreement for existing project. In addition, the Group undertook 2 EPC projects and 1 O&M project. The new projects contributed to the increases in daily waste water treatment capacity by 655,000 m3, daily reusable water supply capacity by 85,000 m3, daily water supply capacity by 600,000 m3, and daily sludge treatment and disposal capacity by 200 tonnes.
Buy-in Price: $1.65, Target Price: $1.98, Cut Loss Price: $1.50

Fuji Oil Holdings Inc. (2607)
Established in 1950 via investment from ITOCHU (8001). Mainly carries out the manufacture and retail of oil and fat products, confectionery and bread making ingredients and products and soybean products. Is recognised for their unique technology such as the development of chocolate which does not stick even when touched.For 3Q (Apr-Dec) results of FY2020/3 announced on 4/2, net sales increased by 28.6% to 291.499 billion yen compared to the same period the previous year and operating income increased by 4.4% to 16.64 billion yen. Despite a decrease in operating income due to reasons such as the effect of cheaper currency in the procurement of ingredients from Brazil in their industrial chocolate business, there was an increase in operating income in the vegetable fat and oil business, the emulsified and fermented ingredients business and the processed soybean ingredients business.For its full year plan, net sales is expected to be 430 billion yen and operating income to be 25.5 billion yen. Rate of change compared to the previous period is undisclosed due to a change in the accounting period of overseas consolidated subsidiaries. In addition to reports that MOS Food Services (8153) is planning to release a 100% plant-based hamburger using a soybean-based meat substitute this summer across Japan as well as major meat manufacturers entering the household plant-based meat market, etc., we can expect growth in the soybean meat market which the company has been focusing their development in.Target Price : 2,800 yenBuy Price : 2,610 yenCut-Loss : 2,500 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 2-3-2020
Price on Recommendation Date$ 3.770
Suggested purchase priceN/A
Target Price$ 5.060
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Leon Duan
(Research Analyst)
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