SINGAPORE (May 26): CIMB Research remains upbeat on China Jinjiang Environment (CJE) amid robust growth in capacity expected ahead.
The research house is keeping its “add” rating on CJE with an unchanged target price of $1.10.
“The construction of its new waste-to-energy (WTE) projects is progressing in line with expectations,” says CIMB analyst Keith Li in a Thursday report.
According to Li, CJE’s management has signalled that more new WTE projects in China are likely to be added this year.
In addition, CJE has secured two WTE projects in India as part of its strategy to expand into Asia. “CJE’s two Indian projects have an expected IRR (internal rate of return) of over 15%, higher than the 8% in China,” Li says.
The WTE operator on April 17 announced its maiden first waste management project in India.
(See also: Jinjiang Environment secures maiden $61 mil waste management project in India)
“At end-16, CJE had WTE operating capacity of 28,230MT,” says Li. “After the latest review, the management is confident of achieving its targets of completing 5,660MT new capacity in FY17F and 10,000MT in FY18F.”
This means that CJE’s WTE capacity will increase by some 55% in 2017-18.
In addition, Li says CJE’s build-order-transfer (BOT) construction earnings could receive a boost this year from projects in the pipeline.
“We see the 1,000MT expansion of Yinchuan Zhongke WTE, which started construction in 2Q17, and the Linzhou Jiasheng 1,000MT WTE project, which is scheduled to commence construction in 2H17, as the major contributors to CJE’s BOT earnings in FY17F,” Li says.
CJE’s BOT construction revenue fell by 82.7% y-o-y in the first quarter due to fewer construction services provided.
Revenue from its dominant WTE business segment, however, grew 39.2% to RMB469.4 million ($94.5 million) in 1Q17.
CJE in the first quarter ended March posted a 6.8% increase in earnings to RMB127.4 million on the back of better margins.
(See: China Jinjiang Environment reports 6.8% earnings growth to $25.8 mil in 1Q)
“CJE provides an opportunity for investors to tap into the fast-growing WTE market in China and the great potential in other Asian countries. It is attractively valued at 7.7x FY17F P/E and 6.5% FY17F dividend yield,” Li says.
As at 4.32pm, shares of China Jinjiang Environment are trading half a cent lower at 88.5 cents.
