Weak 1H17 results but guidance for FY17 maintained
Dongjiang Environmental reported weak 1H17 results, with earnings 5% belowDBe. Management attributed the weak earnings to project ramp-up and utilizationimpact from China's environmental supervision, but it expects the situation tonormalize from 2H17. Management maintained its full-year recurring earningsgrowth guidance of ~18%. We maintain Buy on strong capacity growth outlook,Dongjiang's leading market position and valuation.
　　Weak 1H17 on hazardous waste treatment revenue
Recurring profit was only RMB215m, up 11% yoy but 5% below DBe. The earningsmiss was driven by lower-than-expected waste treatment revenue. Managementexpects recurring profit growth to be 0-30% for 9M17 and to be ~18% for FY17.Dongjiang undertook several hazardous waste EPC orders in 1H17, with a totalorder size of RMB286m.
　　Other updates from results
　　Dongjiang's treatment volume for physio-chemical and incineration rose by 100%and 50% yoy, respectively, in 1H17. Dongjiang has completed the construction ofhazardous treatment facilities of 40ktpa （Hubei Tianyin, Zhuhai Yongxingsheng）and hazardous waste recycling facilities of 30ktpa （Hubei Tianyin） in 1H17. Thecompany expects to have 158ktpa and 160ktpa of hazardous waste treatmentcapacities （Dongguan Hengjian, Hengshui Ruitao） coming on stream in 2H17and 2018, respectively, and 118ktpa of hazardous waste recycling capacitiescoming on stream in 2018. Dongjiang plans to expand aggressively to Shandongand Hebei, and also plans to expand into PPP projects, soil remediation, waterenvironment renovation and utility pipeline.
　　Takeaway from post-results conference call on operations…
In 1H17, the utilization rate of incineration/landfill/physio-chemical treatment was88%/98%/41%, respectively. Hazardous waste treatment volume in 1H17 was220kt, up 58% yoy, and 2Q17 volume went up 28% qoq. Management expectstotal treatment volume to reach over 500kt for FY17 and expects hazardouswaste treatment volume to reach 0.93/1.21/1.55mtpa by 2017/18/19, respectively.Due to the recent Environmental Supervision from the MEP, most of Dongjiang’sproject ramp-ups were behind schedule in 1H17. However, management believesthat the ramp-up should become more smooth after the 19th CPC NationalCongress and the utilization of the projects should also rise. The company seesstrong demand for hazardous waste treatment facilities in Guangdong and Hebei,and believes that its projects in Dongguan and Hengshui would reach very high