20090109 BOCI Initiating Coverage: China Everbright International
China Everbright International
More than just a concept
We initiate coverage on China Everbright International (CEI) with BUY rating and a target price of HK$2.16. We believe CEI is well-positioned to benefit from growth in China’s waste management and sewage treatment sectors amid supportive government policies. Its execution record shows that environmental business is not just a concept for CEI, but a deliverable financial promise.
Key Points for Rating
Increasing waste and sewage water discharge creates opportunities for treatment and energy recycling.
Preferential government policies and huge budgeted investments for the environmental protection business.
Positive records in Jiangsu and Shandong point to CEI’s ability to launch more projects and enhance returns.
Key Risks to Rating
Stiff competition for projects from private entities with good relationships with authorities.
Lower utilisation rates for certain projects.
Potential funding needs as leverage increases.
Valuation
Discount cash-flow (DCF)-based target price of HK$2.16.
Target 2009E P/E of 17x 2 and P/B of 2x.
EPS to grow 29% in 2009 and 15% in 2010 with EBITDA margin to widen from 34% in 2007 to 46% in 2010.