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Hong Kong company reporting season

Everbright looks overseas as domestic competition hots up

Waste-to-electricity project specialist posts higher-than-expected 21pc rise in interim profit to HK$1.21 billion

PUBLISHED : Monday, 15 August, 2016, 12:54pm
UPDATED : Monday, 15 August, 2016, 10:09pm

China Everbright International, one of the mainland’s largest builders and operators of waste-to-electricity projects, plans to accelerate its overseas business development as domestic competition intensifies.

The firm has created an international unit for overseas investment, focusing on southern, southeast, western and northern Asian markets, chief executive Chen Xiaoping said on Monday.

It also struck an agreement to invest in a solid waste treatment firm in Poland in the first-half, and won the right in July to build a waste-to-energy project in Vietnam.

“The purpose of our overseas expansion is to ensure long term sustainable growth,” Chen said, after the firm posted a higher-than-expected 21 per cent rise in interim profit.

“Many nations in the [Silk Road economic belt] regions are at the early stages of tackling their waste treatment problem, so we can deploy our technological, equipment production and management advantages to tap the tremendous opportunities in these nations.”

Chen conceded rivalry for new projects in mainland China has intensified in recent years which have pushed down waste processing fees. But he said his firm has still been able to maintain steady returns through technological and management improvements.

The company has managed an impressive increase in the efficiency of its energy generation by using the latest imported equipment, he added.

Many nations in the [Silk Road economic belt] regions are at the early stages of tackling their waste treatment problem, so we can deploy our technological, equipment production and management advantages to tap the tremendous opportunities
Everbright chief executive Chen Xiaoping

It has raised the amount of power generated by processing each tonne of municipal waste from just over 200 kilo-watt-hours (kWh), when it first entered the industry, to over 400 kWh.

China Everbright’s return on shareholder equity was 7 per cent in the half year. For the whole of last year, it achieved 12.5 per cent, compared to 11.5 per cent in 2014 and 15.5 per cent in 2012.

Dennis Ip, Daiwa Capital Markets head of Hong Kong and China utilities, renewables and environment research, said he expects mainland waste-to-energy project developers such as Everbright to continue expanding in inland regions, despite lower returns of 8-10 per cent compared with the 12 to 15 per cent returns in coastal developed regions.

He highlighted in a research note, this is because there is stronger competition for new projects in coastal regions, where much of the municipal waste is already handled by the latest waste-to-energy systems, and where any new projects take longer to get approval.

China Everbright’s first half net profit was HK$1.21 billion, up from HK$1 billion in the year-earlier period, 4.3 per cent ahead of the average estimate of HK$1.16 billion by Sinopac Securities, Citi and JP Morgan’s analysts.

First-half revenue for the firm – which is 41.4 per cent owned by the central government-backed financial services-focused conglomerate China Everbright Group – grew 44 per cent to HK$5.42 billion.

The interim dividend of 7.5 HK cents per share is a 15 per cent increase from 6.5 cents last year.

For the full year, China Everbright is forecast by 24 analysts to post a net profit of HK$2.59 billion, up from 24.3 per cent from last year.

First-half earnings before interest, taxes, depreciation and amortisation (ebitda) of its waste-to-energy and sludge and food waste treatment projects rose 12.2 per cent to HK$1.35 billion, while that of waste water treatment plants increased 5.2 per cent to HK$432.3 million.

Ebitda from solar, wind and biomass power generation and solid and hazardous treatment projects amounted to HK$475 million, up 222 per cent year-on-year from HK$147.3 million. Chen said the firm aims to complete a separate listing of this business in Hong Kong by year-end.

The company has secured 18 new projects involving total investment of 9.46 billion yuan in the year’s first six months.

The waste-to-energy business had completed 23 projects by the end of June, with 12 more under construction and 18 in the preparatory stage.

China Everbright shares Monday closed 1.2 per cent higher at HK$9.05. They have fallen 9.1 per cent since the start of the year, underperforming the Hang Seng Index’s 4.6 per cent gain.

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