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BJ ENT WATER (371 HK) - 4M19 operation on track

作者: Scully TSOI,Eric SIU
时间: 2019年06月25日
重要性: 一般报告
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摘要: Report title:BJ ENT WATER (371 HK) - 4M19 operation on track
Analyst:Scully TSOI,Eric SIU
Report type:Company
Date:20190625
[Summary]

■ The co. secured >1mtpd WWT projects in 4M19 and RMB7bn water renovation projects YTD
■ Cooperation with China Three Gorges Corporation are on track
■ We maintain BUY and our DCF-based TP of HK$5.4
New project wins on track
For WWT and water distribution projects, in 4M19, BEW added >1mtpd water treatment capacities, achieving ~25% of mgmt.’s full year guidance of 4mtpd. As the co. is currently following more than >10.8mtpd projects, mgmt. is confident to meet its new capacity addition target in 2019. Most of the newly secured projects are greenfield projects. Mgmt. sees a slow acquisition pace given the unattractive price. For water renovation projects (mainly PPP), the co. secured 2 PPP projects in Hengshui and Yueyang with an aggregate investment amount of ~RMB7bn.
Expect more cooperation with CTGC
In Jun 2019, the newly set up JV among BEW, China Three Gorges Corporation (CTGV) and other entities won their 1st PPP project in Yueyang city with a total investment amount of RMB4.4bn. BEW sees ample business opportunities along Yantze River Delta as the market size of renovation projects in the region can reach to >RMB2tr. Going forward, mgmt. expects more in-depth cooperation with CTGC in both new project exploration and management involvement; for example, CTGC increased its equity stakes in BEW from 4.7% in Jan 2019 to 5% in Jun 2019 and once its stake in BEW reached 10%, it could get a board seat in BEW. Accordingly, mgmt. is confident to secure RMB20bn PPP projects with CTGC in 2019.
Asset light operational model for PPP projects
As emphasised by mgmt., BEW adopts asset light model for PPP projects; BEW would only contribute <10% of the investment and provide related design, EPC and operational services, which have a shorter payment period. Meanwhile, the revenue generated from consultation, EPC and operational services can largely cover BEW’s investment.
Focus on improving cashflow in mid-term
BEW has shifted its focus from aggressive expansion to cashflow improvement in mid-term; the co. has adopted a series of measurements, e.g. stringent project selection and review, and asset collateral requirement for PPP projects. Mgmt. expects the co. to turn into positive free cashflow in the next 3-5 years.

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