China Jinjiang - CIMB Research 2017-04-26: Expanding Out Of China

China Jinjiang - CIMB Research 2017-04-26: Expanding out of China CHINA JINJIANG ENV HLDG CO LTD BWM.SI

China Jinjiang - Expanding out of China

  • We hosted a post-results NDR with CJE in Hong Kong. Investors were impressed by the company’s solid business and leading market position.
  • CJE sees growth potential in China’s waste market, especially waste pretreatment.
  • The recently-secured waste project in India is expected to generate 15% IRR.
  • CJE plans to add more projects in China and overseas, which are the key catalysts.
  • Maintain Add.

Investor feedback on the non-deal roadshow (NDR) in Hong Kong 

  • We recently hosted a NDR with CJE’s management in Hong Kong. 
  • Overall, we saw positive feedback from investors who previously were not aware of CJE’s leading market position in China’s waste-to-energy (WTE) industry and solid businesses. 
  • CJE’s recent expansion into India’s WTE and future growth strategy in both China and overseas markets were the focus of the discussions.

Management is upbeat on China’s WTE market 

  • Management sees plenty of growth potential in China’s WTE market. They think the Rmb0.65/kWh electricity tariff is unlikely to be cut in the next few years given the government’s aggressive target (raising WTE capacity by 150% from 2015 to 2020) and the cost uptrend induced by the stringent standards on waste treatment.

Pretreatment will be a key trend 

  • The pretreatment technology from Europe has become more mature and can cope with the characteristics of the waste in China. CJE has introduced the advanced technology into its plants. Management thinks pretreatment is important because it can 
    1. achieve the government’s goal of maximising waste recycling and reuse, 
    2. raise the efficiency in incineration, and 
    3. increase the geographical coverage of each incineration plant.

The Lucknow waste project is expected to generate 15% IRR 

  • CJE recently won the Lucknow waste project in India. The project has waste collection and tipping fees of Rmb170/ton, electricity tariff of Rmb0.79/kWh and 10 years exemption on income tax, generating 15% IRR. 
  • With the serious waste problem, the Indian government is looking to introduce more private investments into its waste treatment. CJE is actively looking for another 2-3 WTE projects in India.

CJE also eyeing opportunities in Vietnam and Indonesia 

  • Besides India, CJE is interested in waste projects in Vietnam and Indonesia. The parent group’s previous investment history in Indonesia would help. Management expects the rapid urbanisation and economic development there will result in the need for WTE. 
  • The market competition in these countries is still not so severe and local governments offer good investment terms.

Potential upside in capacity expansion for next two years 

  • CJE expects its waste treatment capacity to grow by 20% CAGR from 27,430 tons/day at end-16 to 47,490 tons/day by end-19F. This target is conservative because it excludes 
    1. the Indian project recently secured, 
    2. the potential injection of the four WTE projects in Shandong and Shanxi currently owned by the parent group, and 
    3. the prospective projects in China and SE Asian that CJE is currently pursuing.

Reiterate Add rating 

  • We reiterate our Add rating with an unchanged DCF-based target price of S$1.10 (WACC: 9.9%). CJE’s ongoing expansion in China and SE Asia will be major catalysts.
  • Key risks are the construction and execution risks for new projects.

Keith LI CIMB Research | 2017-04-26
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.100 Same 1.100