China Environmental:Industry read-across on investment fund;HWT;BOT/TOT;Buy CEG

Industry read-across on investment fund; HWT; BOT/TOT; Buy CEG

    We had a meeting with management of CITIC Envirotech (CEL SP, not rated),a major environmental player in China involved in industrial/municipal watertreatment (capacity of over 5mtpd), water environment renovation, membranemanufacturing (capacity of 20m m2p.a.) and hazardous waste treatment. Keytakeaway include 1) it's difficult to have capital contribution of less than 20%for investment funds (which offers read-across for possible capital structure ofBeijing Enterprises Water (371HK) and China Everbright Water (CEWL SP)’sinvestment funds; 2) hazardous waste treatment (HWT) projects can still generateover 15% project IRRs despite new entrants (which highlights the profitabilityof China Everbright Greentech (1257HK)’s HWT pipeline projects) and 3) it isincreasingly difficult to find standalone BOT/TOT projects (which offers insightsto SIIC (SIIC SP)’s capacity addition beyond 2017e). Our sector top pick is ChinaEverbright Greentech (1257HK, Buy, TP HKD7.7) which we like for its strongproject pipeline, excellent project management and potential expansion to soilremediation.