Dongjiang Environmental Protection’s （00895 HK） 1H18 revenueincreased 18.4% YoY to RMB1,662 million. Net profit increased 20.9%YoY to RMB266 million. Results were in line with expectation. Grossmargin decreased 0.7 ppts YoY to 35.6%. The Company provided forecastguidance of shareholders’ net profit in the range of RMB326 million andRMB375 million for the first 9 months of 2018, which was below marketexpectation.
With expected new capacity in recycling in 2018 and an expectedupward trend for copper products demand, industrial waste recyclingrevenue should continue to grow over the next three years. As forindustrial waste treatment, despite being one of the leaders of a fast growingmarket and having a strong backlog of pipeline of projects, we think theCompany’s largest obstacles in capturing new market share is its internalcontrol of projects and its ability to obtain new funding to increase treatmentcapacity.
Our EPS estimates are RMB0.645, RMB0.765 and RMB0.928 for 2018/2019/ 2020, respectively. Judging from the current pipeline and projectcompletion progress, the Company’s target of reaching an industrial wastetreatment capacity of 3.5 million tons/year by 2020 seems too aggressive, butthe Company can still maintain its leading position if it can achieve our moreconservative estimates. Slightly revise the TP down to HKD12.50, or16.7x/ 14.0x/ 11.6x 2018/ 2019/ 2020 PER. Maintain "Accumulate".