Recent situation of the company
We update our forecast for Everbright's green environmental performance, considering that the company: 1) pay more attention to asset operation quality strategically and slow down the speed of new projects; 2) the cost of hazardous waste disposal has declined, so we have lowered the company's annual profit forecast for 2021 to 22.4% to HK $1.33 billion, down 12% from the same period last year.
Comment
Slow down the expansion rate of biomass projects and superimpose the disposal fee of hazardous waste projects, which puts pressure on the performance of the company. The company pays more attention to the operation quality of the projects on hand, pays more attention to the cash flow, and is more cautious about the new biomass projects, which reduces the scale of the projects under construction and affects the company's construction income performance; at the same time, we expect more new production capacity in the hazardous waste disposal industry, market competition has intensified, some projects hazardous waste disposal prices decline, or lead to pressure on the company's performance.
Pay attention to the continuous repair of the company's cash flow. In the case that the company pays more attention to the quality of operation, although the company has reduced the number of new projects, it is conducive to reducing the pressure of capital expenditure and the continuous repair of the company's cash flow. And the company continues to develop the steam business with stable cash flow on the existing biomass projects to further improve the quality of the company's cash flow. And the company's 1H21 issues asset-backed bills, and the underlying asset is the company's accounts receivable, which further improves the company's asset quality statement.
Biomass projects are expected to benefit from CCER and enhance the value of the company. Recently, the carbon reduction market continues to promote, we believe that biomass projects are in line with the purpose of carbon reduction, the future company biomass projects may be expected to gain incremental benefits through CCER trading. As a leading biomass enterprise, we believe that the company will benefit from the continuous promotion of carbon trading in the future, and the value of the company is expected to be revalued.
Valuation and suggestion
Taking into account the strategic transformation of the company, the slow pace of new projects and the decline in hazardous waste disposal fees, we reduce the company's net profit of 202112022E 22.4% of net profit 26.9% to 13.3 / 1.37 billion Hong Kong dollars. The current share price of the company corresponds to a price-to-earnings ratio of only 4.3 times earnings in 2021 / 2022, and the company's target price is reduced by 19.69 to 4.10 Hong Kong dollars, corresponding to a price-to-earnings ratio of 6.56.2 times earnings in 2021 / 2022. There is 49% room to rise from the current share price.
Risk
The project was put into production lower than expected, and the subsidy was not issued in time.