China Everbright Water - Sponge City Project To Support FY17
- Maintain BUY with a lower TP of SGD0.54 (from SGD0.62, 23% upside) as we believe the worst is over for China Everbright Water.
- Management aims to complete the bulk of the Zhenjiang Sponge City Project by end- 2017. As such, we expect most of the revenue to be recognised next year, thereby supporting growth amidst a softer business outlook.
Sponge City Project to support growth.
- Construction works for Zhenjiang Sponge City Project only began towards end-2016. It has an investment value of CNY1.4bn.
- We believe the bulk of it would be recognised in FY17. We also opine that FY17F would likely see lower gross margin on higher construction revenue.
Management keeping its target to reach 10m tonnes of capacity by 2020.
- We believe achieving this target could be difficult given the rising competitiveness in the wastewater treatment industry.
- We have only factored in 500,000 tonnes of newly secured capacity pa between FY17F-19F. Any additional capacity would be an upside to our TP.
Maintain BUY with a lower DCF-derived TP SGD0.54.
- Excluding one-off forex losses, FY16 results were in line with our expectations. However, we trim our FY17F-18F earnings by 12-14%, as newly secured capacity of 485,000 tonnes was a far cry from management’s target of 1m tonnes.