More projects commencing operation in FY21E vs. FY20
Exploring carbon trading opportunities, but still at early stage
Maintain BUY and raise DCF-TP to HKD5.7
Ample room to expand while cash flow picture improving
Canvest’s project pipeline looks eventful to support new projects commencement for near future, we expect 8,650 tpd of capacity to complete construction by the end of 2021 (vs. 7,200 tpd in 2020), driving operational revenue growth of 25% which we estimate will help narrow its negative OCF meaningfully for FY21E. Its projects under planning will stand at 17,150 tpd by end of the year (or 33% of its total project portfolio). Year to date, it has successfully won 4 new projects to its portfolio: 1) Changning Hunan WTE project Phase I&II (Total 1,000 tpd); 2) Huizhou Guangdong WTE project (1,000 tpd); 3) Zhongshan Guangdong Phase II expansion (2,250 tpd) and; 4) Langzhong WTE project in Sichuan (350 tpd) with the cooperation with Shanghai Industrial Holdings Limited (363 HK, NR), driving its project portfolio to 51,490 tpd.
Exploring carbon trading
Carbon trading will be another key area for Canvest to explore on the backdrop of the global carbon neutrality trend. As a result, high emission industries will face more pressure from regulations to reduce its carbon emission or through buying certified emission reduction credits from renewable energy enterprises. According to management, after seeking consultation, they will participate in the emissions trading system overseas particularly in Europe for their newly commenced projects (<2 years in operation), while the application process for each project will normally require 0.5 to 1 years. From our observation, on average, the carbon future prices are traded within EUR20-30/tonne. Such initiative will allow its projects to produce additional revenue stream in the future.
Maintain BUY with raised TP of HKD5.7
We adjust its FY21E/22E/23E earnings by -2%/2%/-3% as we update its project schedule. After we roll over our DCF valuation starting period to FY22E, we revise up its TP to HKD5.7 from HKD4.6, implying 10x FY22E P/E. Canvest remains our top pick in WTE space.