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BJ ENT WATER (371 HK) - Making progress while ensuring stability

作者: Scully TSOI,Eric SIU
时间: 2019年01月11日
重要性: 一般报告
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摘要: Report title:BJ ENT WATER (371 HK) - Making progress while ensuring stability
Analyst:Scully TSOI,Eric SIU
Report type:Company
Date:20190111
[Summary]

■ Mgmt. maintains the net added water treatment capacities at 4mtpd/year at 2019-20E
■ Mgmt. sees room to improve operation efficiency in mid-term due to the adoption of new technologies
■ Maintain BUY and DCF-based TP at HK$5.5. The stock is currently trading at 7.6x 2019E P/E, 28% discount to its 3-year historical average P/E of 10.5x
Maintain operation and project win targets
In 2018, BEW net added >4mtpd water treatment capacities (incl. those newly won tenders), on track with mgmt.’s full year guidance of 4mtpd. In view of the plenty market opportunities (>100 projects are being followed), mgmt. maintains its newly added water capacity target at 4mtpd/year in 2019-20E unchanged. Risk reward profiles (incl. local government’s affordability, asset quality, return and valuation) are being carefully reviewed for potential M&As. Given the unattractive valuation at the current stage, M&A pace is still in a slow mode. The co. persists its asset-light strategy on PPP projects with ~10% of capital contribution and will focus on providing operation management services. Underpinned by strong project pipelines, mgmt. forecasts 2-3mtpd water treatment projects will commence operation in each of 2019-20E.
Have potential to improve operation margin in mid-term
Mgmt. expects the gross margins of WWT and water distribution services will remain stable at >50% in near term. But in mid-term, mgmt. sees room for operation efficiency improvement as 1) the co. introduced Nereda? wastewater treatment technology from Royal HaskoningDHV in Nov 2018, which can save the operating costs by 30-50% and land size area by 50% and 2) smart water management system to save the labour costs and enhance energy efficiency.
A long-waited incentive scheme
It takes BEW 4 years to release new round of incentive scheme; on 17 Dec 2018, the co. announced a share award scheme, which differs from traditional share option scheme, to qualified employees, directors and consultants. BEW would appoint a third party to purchase <2% of the total issued share capital of the co. through open market at the co.’s cost. The qualified participants need to use part of their year-end cash bonus to exchange for certain level of share award based on their KPI performance. Such scheme would further raise employees’ incentive and commitment to improve the co.’s operational performance in our view.

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