1H21 results driven by more WTE plants commencing operation with improving operating efficiency lifting gross margin
Existing project expansion and Guangdong region to be long term focus
Solid project quality amid environmental thematic trend; Maintain BUY and TP at HKD5.7
Core profit grew 29% to HKD599mn, in-line
Canvest’s revenue growth reached 34% yoy driven by increase in WTE operational capacity, pushing up its power sales and waste treatment fee revenue (combined +44% yoy). Its construction revenue was up +26% yoy with more projects completing construction (7,850 tpd vs. 2,450 tpd in 1H20). Overall GPM edged up 2.2ppt to 36%, lifted by better efficiency on its operating WTE plants. Its administrative expenses surged 80% yoy to HKD218mn, as cost ramped up with more plants commencing operation. Overall, its core profit rose 29% yoy to HKD599mn, slightly below our forecast of HKD627mn. Interim dividend of HKD0.05/share was declared, implying 20% payout ratio (vs. 19% in 1H20). Net gearing ratio was up slightly to 116% (vs. 114% in 1H20).
Expansion phase and top tier regions drive future projects
For 2H21E, mgmt. expect a further c.3,000tpd of new capacity to commence operation, leading to the highest new capacity ramp in a single year (i.e. 10,900tpd) in order to be eligible for national power subsidy before 2021 deadline. Beyond 2021, mgmt. believe that existing project expansions will be Canvest’s key focus in capacity growth, while they will continue to look for new projects in Guangdong province.
Rising treatment fee trend
Management see rising trend in treatment fee, observed from this year’s new project biddings. Also, there is a substantial difference in treatment fee among 1st tier vs. low tier cities (average: RMB150/tonne vs. Maintain BUY and DCF-TP at HKD5.7
We edge up our FY21E-FY23E core profit by 2-3% incorporating improving operational efficiency expectation. We like Canvest given its good quality projects in Guangdong, maintain BUY and TP at HKD5.7.