Dongjiang Environmental Protection’s （00895 HK） 2017 revenueincreased 18.5% YoY to RMB3,100 million. Net profit decreased 11.3%YoY to RMB473 million. Results were slightly below expectation. Grossmargin decreased 0.2 ppts YoY to 35.9%. The Company’s guidance for 2018revenue and shareholders’ profit is RMB4,100 million and RMB575 million,respectively, increase YoY from 2017 actual by 32.3% and 21.6%.
With expected new capacity in recycling in 2018, industrial wasterecycling revenue should continue to grow over the next three years.
China will launch another round of census for pollution sources in 2018, andthe hazardous waste treatment industry will benefit from stricter governmentsupervision. Being one of the largest industrial and hazardous wastetreatment operators in China, the Company is expected to capture the fastgrowth potential in the market with increased incentive for pollution producerspaying for the treatment services.
Our EPS estimates are HKD0.660, HKD0.805 and HKD0.984 for2018/2019/2020, respectively. We think that the current valuation is notdemanding given its leading market position and background reinforcementwith Guangdong Guangsheng becoming its majority shareholder. Slightlyrevise the TP down to HKD14.00, or 17.6x/14.4x/11.8x 2018/2019/2020PER. Maintain “Accumulate”。