Tongzhou Project Phase Two Dynagreen announced impending launch ofPhase Two of Tongzhou WTE Project with the municipality of Tongzhou District,Beijing. Since Tongzhou Project has 2,250 tons daily capacity under constructionin Phase I, the additional capacity will boost its total to 3,950 tons. Due to highdemand for MSW treatment in Beijing, construction of Tongzhou Project II isexpected to begin in 1Q18E and commence operations in 2H19E. By utilizing theexisting development of Phase I, the total investment of Phase II will be aboutRMB 650mn. Since the waste treatment fee is the same as Phase I, RMB 152 perton, we expect the project to generate robust returns for Dynagreen.
Earnings revision Due to smooth execution in construction, we broughtforward the commencement dates of Tongzhou Project I, Ninghe Project andBengbu Project to 1Q18E, 3Q17E and 4Q17E. We revised up FY18E operationsrevenue by 11.7% since we revised up FY18E operating capacity by 14.3% to13,200 tons. Besides, with contributions from newly added Tongzhou Project II,we revised up FY18E construction revenue by 9.7%. With 9.6%/22.2% higher intotal revenue in FY18E/19E, we revised up FY18E/19E EPS by 8.2%/10.4%.
Maintain BUY with TP revised up to HK$6.4 We think near term catalyst forDynagreen would be the interim results to be announced this month and potentialissuance of A-share in early-2018. By rolling forward to FY18E, we revised up ourTP to HK$6.4 based on FY18E 13x PE, par to historical average, representing59% upside.