HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Everbright Greentech / Equity Bottom-Up

Due to weaker construction revenue for biomass projects and higher finance costs, <a href="https://www.smartkarma.com/entities/china-everbright-greentech-0377b31c-5401-466f-987e-9a176b05fb52" target="_blank" data-smartkarma-citation="entities:24085:1" rel="noopener">China Everbright Greentech (1257 HK)</a> realised a 15% YoY decline in net profit in 1H21. But on HoH basis, this has still increased 3.2%. Except biomass construction, all business segments witnessed good growth. It is encouraging to see operational projects contributed 70% of revenue in 1H21, up massively from 56% a year ago. We believe this trend will improve its earnings quality and financial position over the medium term. Management expects good growth for hazardous and waste treatment segment, both in construction and operational revenue given the project pipeline. Lower capex, collection of subsidies and securitisation will further lift its financial position. At 3.9x PER for FY21, CEGT is not expensive but we still prefer <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a>. Alternatively, we cannot rule out the possibility that CEGT will be privatise some time in the future, given its undemanding 0.4x P/B and the reducing need for such a separately-listed vehicle within the China Everbright Group.

Due to weaker construction revenue for biomass projects and higher finance costs, China Everbright Greentech (1257 HK) realised a 15% YoY decline in net profit in 1H21. But on HoH basis, this has still increased 3.2%. Except biomass construction, all business segments witnessed good growth. It is encouraging to see operational projects contributed 70% of revenue in 1H21, up massively from 56% a year ago. We believe this trend will improve its earnings quality and financial position over the medium term. Management expects good growth for hazardous and waste treatment segment, both in construction and operational revenue given the project pipeline. Lower capex, collection of subsidies and securitisation will further lift its financial position. At 3.9x PER for FY21, CEGT is not expensive but we still prefer China Everbright Environment (257 HK). Alternatively, we cannot rule out the possibility that CEGT will be privatise some time in the future, given its undemanding 0.4x P/B and the reducing need for such a separately-listed vehicle within the China Everbright Group.

China Everbright Greentech (1257 HK): Updates from Post-1H21 Call

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

Smartkarma North Asia Weekly: POTUS Order, Kanzhun, Angelalign, & 3 Children Policy in China

We take the FY21 guidances for <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> positively and believe they are more important than the FY20 result. In fact, despite a slowdown from 40-50% YoY growth in the previous two years, Conch Venture's 24.6% growth in its core environmental business in FY20 is still a very decent show under a COVID-19 impacted situation.Conch Venture is expecting 76% growth in solid waste treatment volume and a 65% growth in municipal waste treated in its waste incineration business in FY21, on the back of capacity completion. We believe such volume growth should easily support over 80% surge in core environment profit in this year. Its solid project pipeline will further ensure growth beyond FY21. Adding low gearing and undemanding valuation multiples, Conch Venture is well placed in China's environment sector.

We take the FY21 guidances for China Conch Venture Holdings (586 HK) positively and believe they are more important than the FY20 result. In fact, despite a slowdown from 40-50% YoY growth in the previous two years, Conch Venture's 24.6% growth in its core environmental business in FY20 is still a very decent show under a COVID-19 impacted situation.Conch Venture is expecting 76% growth in solid waste treatment volume and a 65% growth in municipal waste treated in its waste incineration business in FY21, on the back of capacity completion. We believe such volume growth should easily support over 80% surge in core environment profit in this year. Its solid project pipeline will further ensure growth beyond FY21. Adding low gearing and undemanding valuation multiples, Conch Venture is well placed in China's environment sector. 

Conch Venture (586 HK): Still Very Well Placed

Canvest Environmental Protection Group / Equity Bottom-Up

Canvest Environmental Protection Group (0XC SW)

<a href="https://www.smartkarma.com/entities/canvest-environmental-protection-group-co-ltd" target="_blank" data-smartkarma-citation="entities:100:1" rel="noopener">Canvest Environmental Protection Group (1381 HK)</a> witnessed a good comeback in 2H20 as its BOT construction segment regained pace after the disruption by the pandemic in 1H20. The company finished the year with an 18.1% YoY growth in profit to a record HK$1.05bn, accelerated from 12.7% in 1H20.Thanks to another 10,090 tonnes/day waste-to-energy capacity which will come on stream in FY21, there will be a 47% increase in operational capacity. Adding to this is better gross margin as new plants achieve higher utilisation levels. Hence, management guides for an encouraging outlook, and we expect healthy double-digit EPS growth over the next two years. Its low valuations of 6.8x PER and 1.1x P/B (ROE of 16.5%) have sufficiently discounted the concerns on high leverage, in our view.

Canvest Environmental Protection Group (1381 HK) witnessed a good comeback in 2H20 as its BOT construction segment regained pace after the disruption by the pandemic in 1H20. The company finished the year with an 18.1% YoY growth in profit to a record HK$1.05bn, accelerated from 12.7% in 1H20.Thanks to another 10,090 tonnes/day waste-to-energy capacity which will come on stream in FY21, there will be a 47% increase in operational capacity. Adding to this is better gross margin as new plants achieve higher utilisation levels. Hence, management guides for an encouraging outlook, and we expect healthy double-digit EPS growth over the next two years. Its low valuations of 6.8x PER and 1.1x P/B (ROE of 16.5%) have sufficiently discounted the concerns on high leverage, in our view.  

Canvest Env (1381 HK): Setting a Positive Tone for Further Strength

China Everbright Environment Group / Equity Bottom-Up

China Everbright Environment Group (257 HK)

<a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a> (CEE) has not disappointed us - its net profit grew 15.6% in FY20, accelerating from a 15.1% growth in 1H20. In fact, this is distorted by impairment at its 69.7%-owned <a href="https://www.smartkarma.com/entities/china-everbright-greentech-0377b31c-5401-466f-987e-9a176b05fb52" target="_blank" data-smartkarma-citation="entities:24085:1" rel="noopener">China Everbright Greentech (1257 HK)</a>. Excluding such impact, earnings would have grown by 24% by our estimate - a truly commendable result in a COVID-19 impacted year.CEE's core environmental energy business stayed as its bread and butter, and will still drive growth in FY21 - its projects under construction reached 60% of its operational capacity at end-2020. CEE is also taking steps in alleviating its stretched leverage level. In our view, its mere 4x PER and 0.6x P/B have well reflected the risks related to high gearing, heavy contract assets and concern on outstanding subsidies.

China Everbright Environment (257 HK) (CEE) has not disappointed us - its net profit grew 15.6% in FY20, accelerating from a 15.1% growth in 1H20. In fact, this is distorted by impairment at its 69.7%-owned China Everbright Greentech (1257 HK). Excluding such impact, earnings would have grown by 24% by our estimate - a truly commendable result in a COVID-19 impacted year.CEE's core environmental energy business stayed as its bread and butter, and will still drive growth in FY21 - its projects under construction reached 60% of its operational capacity at end-2020. CEE is also taking steps in alleviating its stretched leverage level. In our view, its mere 4x PER and 0.6x P/B have well reflected the risks related to high gearing, heavy contract assets and concern on outstanding subsidies.

China Everbright Environment (257 HK): Management Guidance Hinting Sustained Growth into FY21

Hong Kong

China Everbright Environment Group is a global leader in environmental protection, specializing in integrated environmental solutions. It is recognized as the world's largest waste-to-energy investor and operator, also providing waste management, water treatment, and renewable energy services. The company was founded in 1993 and is headquartered in Hong Kong.

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China Everbright Environment Group (257 HK)

China Everbright Greentech (1257 HK): Updates from Post-1H21 Call

1H21 net profit is behind expectation but the good news is that earnings quality has improved with slowdown in the rise in gearing. We still prefer...

Osbert Tang, CFA

Smartkarma North Asia Weekly: POTUS Order, Kanzhun, Angelalign, & 3 Children Policy in China

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK...

Douglas Kim

Conch Venture (586 HK): Still Very Well Placed

Conch Venture's core environmental profit will grow by at least 80% in FY21, based on guidances for solid waste and waste incineration volume. Its...

Osbert Tang, CFA

Canvest Env (1381 HK): Setting a Positive Tone for Further Strength

Canvest posted a record earnings for FY20 despite the challenging environment due to COVID-19. Management suggested a robust picture for FY21,...

Osbert Tang, CFA

China Everbright Environment (257 HK): Management Guidance Hinting Sustained Growth into FY21

CEE achieved a remarkable FY20 with accelerated growth in 2H20. This will extend into FY21 given solid pipeline and full-year contribution of...

Osbert Tang, CFA

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