The listed flagship of Pioneer Group's solid waste treatment business
Some investors have been confused about the direction of Capital Environment Holdings Limited (“Capital Environment”) in the past. After we visited the company earlier, we felt that the company's positioning became clear. The company is the listed flagship of the solid waste treatment business of Beijing Capital Venture Group Co., Ltd. (“Capital Group”), which is wholly owned by the Beijing Municipal State-owned Assets Administration Commission. Capital Group holds the company's holding shares through itself and its Pioneering Shares (600008.CH). Capital Group focuses on four major business segments: (1) environmental protection, (2) infrastructure, (3) real estate, and (4) financial services.
Full industry chain coverage
Unlike some mainland peers, the company is involved in the whole solid waste treatment industry chain business, including (1) domestic waste incineration for electricity generation, (2) landfill, (3) anaerobic treatment, (4) hazardous waste treatment, (5) dismantling of waste electrical appliances, and (6) garbage collection, storage and transportation. As of December 31, 2018, the company has 32 operating projects in China, with an annual processing capacity of 13,692 tons/day, distributed in different regions of the country, such as Beijing, Hebei, Jiangsu, Anhui, Jiangxi, Hubei, Henan, Guangdong, etc. Also, in September 2016, Pioneer Environment completed the acquisition of 51% of New Zealand's largest garbage disposal service provider Waste Management NZ (the remaining 49% is held by the parent company). Waste Management NZ's main garbage collection and landfill business has a market share of over 30% in New Zealand, ranking first in major cities such as Auckland, Christchurch, and Wellington.
Domestic business is being promoted at an accelerated pace, and New Zealand projects provide relatively stable income. We believe that the pioneering environment is striving towards the following two major development directions: (1) speeding up the development of domestic projects, and (2) maintaining existing New Zealand projects to obtain relatively stable income. We expect the total processing capacity of the company's already operating projects in mainland China to increase 50.8% from 13,692 tons/day in 2018 to 20,645 tons/day in 2020. The company's mainland projects developed optimally last year. The share of the mainland business in total revenue and profit during the year increased from 33.7% and 15.3% in 2017 to 50.3% and 39.4% in 2018, respectively. On the other hand, although the synergistic effect of the New Zealand business on the company's mainland projects is not obvious, since the business development is mature, it can provide the company with a relatively stable income. The net market ratio of Pioneer Environment in 2018 was 0.70, far lower than 1.40 of Green Power Environmental (1330.HK; purchase; target price HK$4.73) and 1.77 of Yuefeng Environmental (1381.HK; purchase; target price HK$4.70). Coupled with the company's large state-owned shareholder background, we believe the company will receive renewed attention from the market.
Risk warning
(1) Project development delays, (2) accounts receivable risk, and (3) a sharp drop in grid-connected electricity prices for waste-to-energy generation.