Summary of Investment
There is a great increase in its operational business and a slight growth in its profit quality;It will enter construction period in H2 and its construction businesses is expected to go backto rapid growth;
Its IPO in A-share market is carrying forward steadily.
Investment Advice
The company is gaining in its operational level, has rich project reserves at hand and hasstrong certainty about its performance growth in the following years. It is launching its IPOin A-share market, which is expected to be completed at the end of the year, and the lowvaluation of its H-share may be improved at that time. We estimate, from 2017 to 2018, thenet profit of the company will reach 465/580mn, and respectively, EPS of 0.45/0.56,equivalent to an PE of 8.1/6.5. We give a target price of HKD 6.40 and the Buy rating. （Closing price as at 22 Sep 2017）
Environmental energy business contributed to main revenueincrements
In H1 of 2017, Dynagreen reported, respectively, an operating revenue and a profit of,respectively, RMB985 million and RMB193 million, increasing by, respectively, 18.4%and 16.45%, equivalent to an EPS of RMB0.18 compared to an EPS of RMB0.16 in theprevious year. The major increment contributed to operational business went upsignificantly by 57% to RMB331 million and the income from construction revenuegrew slightly by 2.94% yoy to RMB567 million.
In terms of profitability, the overall gross margin increased by 0.79 ppts yoy to32.35% thanks to the increase in proportion of high gross profit operational business,but the net profit margin went down by 0.33 ppts yoy to 19.57% because the periodcost rate went up by 1 ppts yoy to 12.65% due to the rapid growth in administrationand finance expenses.
The operation index hits a new high
The operation quality of projects put into operation improves significantly and thegarbage treatment volume and on-grid energy hit a new high. The company has putinto operation 11 projects, mainly located in economically developed areas likeBeijing-Tianjin-Hebei region, Yangtze River Delta and Pearl River Delta. The garbage treatment volume and on-grid energy increased by 15% and 36% respectively, to 1.75million tons and 470 million kWh. The waste incineration plants in operation is ableto dispose of garbage of 8550 tons. The operation and management capacity of thecompany can be seen by the fact that it owns 3 out of 11 3A-level （the highest）household garbage incineration plants domestically, respectively in Huizhou, Wuhanand Taizhou, chosen by Central Environmental Protection Association With thecontinuous increases in the demand of local household garbage disposal and theproportion of the household garbage disposal capacity, the operational business isanticipated to grow rapidly.
The project construction and expansion progress well
Among the projects under construction, Jurong Project（700t/d） was put into trialoperation in April and Ninghe Straw Project（700t/d） has finished construction bymore than 90%, Bangbu Project（1210t/d） more than70%, Tongzhou Project morethan 45% and they are expected to be put into trial operation in H2 this year and H1next year. Besides, Miyun PPP Project（1530t/d） and Shantou Project（1500t/d） isunder full construction and Bobai, Zhangqiu, Hongan and Longhui Projects are underpreparation. H2 this year and next year will be an intensive construction period andthe construction businesses are expected to see a huge rise.
In terms of project expansion, the company is both actively developing new projectsand rebuilding or expanding existing projects. Up to now, the company has signed anew contract of Tongzhou Second-phase Project and Yongjia Reconstruction-Promotion PPP Project（including a second-phase project）， respectively increasedisposal capacity by 1700t/d and 750t/d. The scale of projects under construction orpreparation reaches 18390t/d, equivalent to 2 times of the scale of existingoperational projects. Benefiting from abundant projects reserve, there is absolutelyadequate incentive for result growth in the following years.
Investment Advice
The company is gaining in its operational level, has rich project reserves at hand andhas strong certainty about its performance growth in the following years. It islaunching its IPO in A-share market, which is expected to be completed at the end ofthe year, and the low valuation of its H-share may be improved at that time. Weestimate, from 2017 to 2018, the net profit of the company will reach 465/580mn,and respectively, EPS of 0.45/0.56, equivalent to an PE of 8.1/6.5. We give a targetprice of HKD 6.40 and the Buy rating.
Risk Warnings
The existing projects development falls short of expectation;
The acquisition of new projects falls short of expectation;
The progress of IPO falls short of expectation;
Capital and policy risks occur.