长期成长潜力向好，看好垃圾焚烧企业，买入光大国际（摘要）pg.jrj.com.cn/acc/Res/CN_RES/INDUS/2016/5/31/26cf0... · Prices in this report are as of the May

2016 年 5 月 31 日

中国：环保证券研究报告

长期成长潜力向好，看好垃圾焚烧企业，买入光大国际（摘要）

十三五环保市场规模可达人民币 10 万亿元，但竞争加剧我们预计十三五期间（2016-2020 年）中国的环保服务投资将增长一倍至人民币

10 万亿元，相当于同期总 GDP 的 2.5%。为了吸引私人部门的投资，中国推出了

PPP 模式，这需要大量的前期开支并且不可避免地给环保服务供应商带来财务压

力。因此我们认为，只有流动资金管理能力出众和具有低成本融资渠道的企业才

可能在该竞争激烈的市场中取胜。

尽管面临短期不利因素，但盈利增长加速我们预计 2015-17 年的盈利增长将强于 2011-15 年，得益于规模空前的投资以及

行业龙头市场份额的扩大。然而，我们将评级为买入的企业的盈利预测下调了

3%-14%，以体现短期内面临的不利因素，包括增值税返还优惠的调整以及部分

项目进度推迟。

看好垃圾焚烧和危废处理业务垃圾焚烧：渗透率较低 + 回报率相对较高到 2015 年底，市政垃圾无害化处理和垃圾焚烧的比率远落后于十二五规划

（72%/26% vs. 90%/35%）。我们预计十三五期间垃圾焚烧产能将年均复合增长

18%。加之回报率具有吸引力，我们预计这将吸引私有资金投入产能建设。

危废处理：壁垒较高，处于最佳时期。尽管产能缺口较大，但危废处理受到严格

监管（通过基于项目发放许可的方式）。我们认为，较高的进入壁垒为业内企业

提供了受益于强劲潜在需求的“保护”。

买入行业领先企业：优选资金管理能力出众和高成长性买入优质领先企业：光大国际（垃圾焚烧）、北控水务（水处理）、碧水源

（MBR 与水务相关的 PPP）、启迪桑德（电子废弃物回收和环卫）是环保领域

投资加速的主要受益者。由于行业龙头企业获取融资的能力更强，我们预计十三

五期间这些企业的表现将领先于已处于快速增长的环保行业。

卖出创业环保(A)，因竞争激烈我们维持对创业环保(A)的卖出评级，因为我们认为其较高的估值（2017 年预期

市盈率为 32 倍）缺乏支撑（考虑到增长空间有限）。我们将创业环保(H)的评级

由买入下调至中性，因为我们认为该股估值合理。

*全文翻译将随后提供

我们的评级和目标价格

注：收盘价截至 2016 年 5 月 26 日。

资料来源： Datastream、高华证券研究

评级调整

将光大国际的评级由中性上调至买入

创业环保(H)的评级由买入下调至中性

相关研究

中国：环保：十三五环境污染治理加速；买入碧水源、北控水务；2015 年 12 月 22 日

中国：环保：在结构性上升周期中重启增长；买入领先企业；2015 年 7 月 13 日

术语表

WtE: 垃圾焚烧

HWT: 危废处理

WWT: 废水处理

WEEE: 电子废弃物回收

MBR: 膜生物反应器

FYP: 五年规划

PPP: 公私合作模式

朱地武执业证书编号: S1420515120001 +86(21)2401-8978 [email protected] 北京高华证券有限责任公司

北京高华证券有限责任公司及其关联机构与其研究报告所分析的企业存在业务关系，并且继续寻求发展这些关系。因此，投资者应当考虑到本公司可能存在可能影响本报告客观性的利益冲突，不应视本报告为作出投资决策的唯一因素。有关分析师的申明和其他重要信息，见信息披露附录，或请与您的投资代表联系。

王玮嘉执业证书编号: S1420515080001 +86(21)2401-8923 [email protected] 北京高华证券有限责任公司

北京高华证券有限责任公司投资研究

Ticker New Currency NewCurrent

price

Potential

up/down

H sharesCEI 0257.HK Buy HKD 12.2 7.99 53%

BEWG 0371.HK Buy HKD 6.8 4.78 42%

Dongjiang (H) 0895.HK RS HKD NA 11.48 NA

Tianjin Capital (H) 1065.HK Neutral HKD 4.5 3.94 14%

A sharesOriginWater 300070.SZ Buy CNY 23.3 14.98 56%

TUS-Sound 000826.SZ Buy CNY 40.4 29.49 37%

GrandBlue 600323.SS Neutral CNY 13.7 11.75 17%

WBD 300055.SZ Neutral CNY 17.0 17.38 -2%

Dongjiang (A) 002672.SZ RS CNY NA 17.41 NA

Tianjin Capital (A) 600874.SS Sell CNY 4.3 7.50 -43%

Tianjin MOTIMO 300334.SZ RS CNY NA 18.05 NA

Rating 12-month Target prices

2016 年 5 月 31 日中国：环保

全球投资研究 2

Table of contents Green market to accelerate growth in 2016E-20E 3

Divergent growth outlook among subsectors: We prefer WtE 5

Potential crisis in backyard: Gearing risks and capital management 13

Changes to earnings estimates reflect 2015 and 1Q16 results 17

Introducing M&A framework, updating target prices 19

CEI (0257.HK): Market leader positioned to grow faster; up to Buy 24

Tianjin Capital (H): Weak growth outlook; downgrade to Neutral 28

Disclosure Appendix 2

Prices in this report are as of the May 30, 2016 market close unless indicated otherwise. Gao Hua Securities acknowledges the role of Yan Yan and Christina He of Goldman Sachs in the preparation of this product.

Exhibit 1: Valuation comp sheet

Source: Datastream, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Exhibit 2: Business snapshot Industry value chain and positioning of Chinese environmental companies

Note: EPC refers to engineering, procurement and construction; BT refers to Build-Transfer.

Source: Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Ticker Rating26-May-

2016 Ccy 12-mth Potential Mkt cap

Price TPUpside

/downside (US$mn) 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018EEnvironmental services

CEI 0257.HK Buy 7.99 HKD 12.2 53% 4,613 12.5 10.2 8.9 1.9 1.6 1.4 10.7 9.6 8.9 45% 46% 48% 16% 17% 17% 64% 68% 62%

BEWG 0371.HK Buy 4.78 HKD 6.8 42% 5,369 13.8 12.0 10.9 2.3 2.0 1.8 16.7 15.6 15.1 36% 36% 37% 17% 18% 17% 131% 136% 134%

Dongjiang (H) 0895.HK Rating Suspended 11.48 HKD 1,285 17.5 12.4 10.4 2.7 2.3 1.9 12.1 9.9 8.8 34% 33% 34% 16% 20% 20% 62% 76% 73%

Tianjin Capital (H) 1065.HK Neutral 3.94 HKD 4.5 14% 724 14.1 14.0 13.1 1.0 1.0 0.9 7.2 6.4 5.7 34% 34% 34% 7% 7% 7% 24% 14% 3%

OriginWater 300070.SZ Buy 14.98 CNY 23.3 56% 2,807 22.4 16.3 12.4 3.0 2.5 2.1 20.1 15.1 11.5 39% 37% 37% 14% 17% 19% 6% 33% 31%

TUS - Sound 000826.SZ Buy 29.49 CNY 40.4 37% 3,804 20.3 14.8 12.2 3.5 2.9 2.4 19.4 16.8 14.7 26% 26% 25% 19% 21% 21% 112% 168% 173%

GrandBlue 600323.SS Neutral 11.75 CNY 13.7 17% 1,372 17.1 14.1 12.1 1.9 1.7 1.5 9.3 8.4 7.6 30% 30% 32% 11% 13% 13% 62% 64% 66%

Dongjiang (A) 002672.SZ Rating Suspended 17.41 CNY 2,307 31.5 22.3 18.7 4.8 4.0 3.4 19.3 15.2 13.4 34% 33% 34% 16% 20% 20% 62% 76% 73%

WBD 300055.SZ Neutral 17.38 CNY 17.0 -2% 1,947 35.5 24.9 19.9 2.7 2.4 2.2 24.1 19.1 16.1 30% 31% 32% 10% 10% 11% -8% 34% 65%

Tianjin Capital (A) 600874.SS Sell 7.50 CNY 4.3 -43% 1,631 31.9 31.6 29.4 2.3 2.2 2.1 14.2 13.0 12.3 34% 34% 34% 7% 7% 7% 24% 14% 3%

Tianjin MOTIMO 300334.SZ Rating Suspended 18.05 CNY 718 69.0 56.4 46.2 3.7 3.5 3.3 53.8 44.8 39.3 31% 31% 30% 5% 6% 7% 10% 40% 62%

Average-H 14.5 12.2 10.8 2.0 1.7 1.5 11.7 10.4 9.6 37% 37% 38% 14% 15% 15% 70% 74% 68%Average-A 32.5 25.8 21.6 3.1 2.7 2.4 22.9 18.9 16.4 32% 32% 32% 12% 13% 14% 38% 61% 68%

Gross margin ROE Net gearingP/E (X) P/B (X) EV/EBITDA (X)

Municipal waste Sludge HWT WEEE Kitchen waste Ash

Upstream-Equipment

CEI

Midstream-EPC/BT

Tus-Sound

Downstream-Operation

DongjiangTus-Sound, CEI

DongjiangGrandBlue, CEI

DongjiangTus-SoundCEI, WBDGrandBlue

DongjiangTus-Sound

GrandBlueTus-Sound, CEI

GrandBlue

Municipal Industrial Rural

Upstream-Equipment

OriginWaterTianjin MOTIMO

Midstream-EPC/BT

OriginWater, BEWG, WBD

OriginWater,CEI Tianjin MOTIMO

Downstream-Operation

GrandBlueTus-Sound

OriginWaterTianjin Capital

Tianjin MOTIMOCEI, BEWG

GrandBlueWBD

Tianjin MOTIMOTus-Sound

GrandBlueTus-Sound, BEWG

Tianjin Capital

OriginWaterTianjin Capital

CEI, BEWG

Solid waste

Solid waste treatmentSanitation

Water

Waste water treatmentWater supply Reclaimed water

Water environment

management

OriginWater, Tianjin MOTIMOWBD

OriginWaterBEWGWBD

OriginWater, Tianjin CapitalTianjin MOTIMO, CEI, WBD

DongjiangGrandBlueTus-Sound

2016 年 5 月 31 日中国：环保


Green market to accelerate growth in 2016E-20E

Environmental investment to speed up Ma Jun, the chief economist of the Research Bureau at the People’s Bank of China (PBoC) and leader of the green finance effort in China, estimates that China will need to invest at least $320bn per year in green sectors over the next five years.

In our view, China’s total investment in the environmental market would double from Rmb5tn in the 12th FYP to Rmb10tn in the 13th FYP, which translates into 2.5% of China’s total GDP during the same period. In order to achieve this, China has introduced the PPP project model and green finance, which should offer the country access to more diversified financing channels.

Exhibit 3: An Rmb10tn market during the 13th FYP (Unit: Rmb tn)

Source: MEP, Shanghai IE Expo conference materials, Gao Hua Securities Research.

Strong earnings growth for industry leaders For most companies under our coverage, we expect stronger earnings growth momentum in 2015-17E vs 2011-15 riding on:

1) Unprecedented spending from both the government and private sectors

2) Market share expansion by leveraging superior capital management

Air, 1.8

Water

related,

3.0

Solid

waste,

4.6

Soil, 1.0

Energy

Structure

optimization

16%

Treatment

of Mobile

Sources of

Pollution

76%

Treatment

of Industrial

Pollution

5%

Treatment

of Non-

point

Sources of

Pollution

3%

Water plant

38%

Sponge

City

49%

Waterbody

renovation

13%

HWT

13%

Municipal

waste

26%

Industrial

waste

22%

Sanitation

22%

WEEE

17%

2016 年 5 月 31 日中国：环保


Exhibit 4: We expect earnings growth of our coverage to accelerate in 2015-17E Earnings CAGR in 2015-17E vs. 12th FYP


1%

19%

26%

29%

30%

35%

43%

44%

45%

5%

42%

30%

5%

27%

33%

13%

40%

41%

0% 10% 20% 30% 40% 50%

Tianjin Capital

BEWG

GrandBlue

Tianjin MOTIMO

CEI

Tus-Sound

Dongjiang

WBD

OriginWater

2011-15

2015-17

2016 年 5 月 31 日中国：环保


Divergent growth outlook among subsectors: We prefer WtE

Municipal waste treatment: Huge market potential With the rapid urbanization in past decades, China has become the largest producer of municipal waste with annual generation of 264mt (2015). However, the build-out of China’s waste processing capacity has lagged behind the growth of waste volume, leaving a vast amount of

municipal waste untreated or improperly treated and causing secondary pollution to the environment. In 2015, we estimate only 72% of municipal waste was collected and disposed, as opposed to the government target of 90% by the end of the 12th Five-year Plan (2015).

We think the lower-than-expected waste disposal ratio is a result of 1) faster growth of waste volume than the growth of waste disposal capacity and 2) inefficient public investment due to the social welfare nature of waste disposal. We believe this will change in the 13th Five-Year Plan

period, as the government is actively seeking cooperation with private sectors through PPP (public-private-partnerships) to tackle the issue of inefficient public investment.

Exhibit 5: Only 72% of municipal waste was collected and disposed in 2015 vs. gov’t target of 90%

Exhibit 6: Components of China’s municipal waste 2015 data

Note: Data is based on a survey result of 12 cities.

Source: China Urban Environmental Sanitation Association, China's Urban And Rural Construction Statistics Yearbook, Gao Hua Securities Research.

Source: National Development and Strategy Research Institute under China Renmin University

76%75%73%71%72%

69%71%72%73%75%76%78%79%

2015 target 90%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

20

16

E

20

17

E

20

18

E

20

19

E

20

20

E% of municipal waste collected and disposed

Kitchen

waste, 59%

Paper,

9%

Plastic, 12%

Glass, 3%

Metals, 1%

Fabric, 3%Others,

12%

2016 年 5 月 31 日中国：环保


Waste-to-energy: Optimal solution for municipal waste treatment If we compare the three major methods of waste treatment in China, waste-to-energy stands out as the optimal solution for waste treatment in China, in our view.

Exhibit 7: Comparison of three major methods of waste treatment in China

Source: National Development and Strategy Research Institute under China Renmin University, Company data, Gao Hua Securities Research.

Looking at the components of China’s municipal waste (based on samples from 12 cities), 59% is kitchen waste, 12% is plastics and 9% is paper. We believe waste-to-energy is the optimal way

to treat them as:

1) no leachate would be leaked into the soil and cause secondary pollution;

2) the size of land required is much smaller compared to a landfill thus saving the land

cost for treating waste; and

3) the volume of waste would be reduced by 80%-90% after incineration and it is

consistent with the government’s appeal of “reducing waste quantity”.

China’s government has been very keen in promoting the build-out of waste-to-energy facilities in Chinese cities by introducing a target waste incineration ratio of 35% in the 12th Five-year Plan and subsidizing a Rmb0.65/kWh power tariff (63% higher than the standard rate).

Waste-to-energy Landfill CompostingConstruction cost Rmb 40-50/t* Rmb 25-40/t NA

Operating cash cost Rmb 40/t Rmb 50-100/t** NA

PollutantsDioxide, ash and

exhaust***leachate and exhaust leachate and exhaust

Size of land requiredSmall

(waste volume reduced

by 80-90%)

Large**** Medium

* cost per ton of waste treated - assuming 25 years of life, 365 days of operation per year

** varies by size of landfill site

*** controllable through filtering under current technology

Revenue sourceRmb 50-100/t

(treatment fee )

Rmb 10/t

(sales of compost)

**** a landfill site with 40kt per annum and 50 years' life would require floor area of 106k square meters (c. 15

football fields).

Rmb 232-330/t (treatment

fee + subsidized power

sales)

2016 年 5 月 31 日中国：环保


Exhibit 8: Waste incineration ratio of 26% in 2015 vs. 50% target by 2020E

Exhibit 9: Penetration of solid waste incineration is low in China vs. global peers

Note: We assume 50% for 2020 as although the target has not been officially announced, it was proposed by a MOHURD official at the 2015 waste-to-energy summit.

Source: China's Urban and Rural Construction Statistics Yearbook, MOHURD, Ministry of Environmental Protection, Ernst & Young, Gao Hua Securities Research

Source: Japan Waste Incineration Report (2013), Waste-To-Energy Success Factors In Sweden And The United States (Matt Williams), http://www.zerowasteeurope.eu/.

At the end of the 12th Five-year Plan (2015), China did not achieve the target 35% waste incineration ratio (26% in 2015) even though waste-to-energy capacity grew at a 20% CAGR in 2010-2015. We believe the continuous build-out of waste-to-energy plants will continue under the

13th Five-year Plan given 1) we view waste-to-energy as the optimal solution in China and 2) China’s government supports the construction of waste-to-energy plants. In the upcoming announcement of the 13th Five-year Plan, we expect China to announce higher treatment ratio target by 2020 (based on the 50% guidance by a MOHURD official at an industry conference).

Exhibit 10: China municipal waste market forecast

Source: China's Urban and Rural Construction Statistics Yearbook, MOHURD, Ministry of Environmental Protection, Ernst & Young, Gao Hua Securities Research

Our sector preference: Waste-to-energy over wastewater projects Considering the divergent outlook of capital returns, margin and cash flow, we prefer waste-to-energy to wastewater as the former is more attractive in terms of:

1. Higher project IRR: On average, waste-to-energy projects generate an IRR of 10%-

15% vs. 8%-10% for wastewater projects. Higher IRR implies better project cash flow,

and we believe this is extremely important for highly geared (>200% net gearing for a standalone project) and capex-intensive BOT projects.

2. Higher gross margins for construction and operation: Waste-to-energy projects

are more attractive from an accounting profit perspective as the gross margins for both construction and operation are higher mainly due to higher technological barriers (grate furnace R&D, exhaust filter and treatment).

26%

2015 target 35%

2020 target 50%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

-

100,000

200,000

300,000

400,000

500,000

600,000

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

E

20

17

E

20

18

E

20

19

E

20

20

E

Solid waste incineration capacity

% of incineration capacity (rhs)ton/d

12%26%

35%49%

80%34% 6%

65%48%

20%

54%68%

3% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

US (2012) China

(2015)

Germany

(2012)

Sweden

(2012)

Japan

(2013)

Waste treatment by methods

Waste-to-energy Recycling / composting Landfill

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Municipal waste generation (mt) 221 231 237 249 256 264 272 280 288 297 306

Municipal waste collected and disposed (mt) 161 165 171 172 181 190 200 210 220 231 243

% of municipal waste collected and disposed 73% 71% 72% 69% 71% 72% 73% 75% 76% 78% 79%

Harmless disposal capacity (t/d) 456,917 519,903 591,572 673,120 765,910 871,491 895,798 920,784 946,466 972,865 1,000,000

Incineration capacity (t/d) 89,625 107,558 132,100 150,000 189,000 223,102 262,178 308,099 362,062 425,477 500,000

% of incineration capacity 20% 21% 22% 22% 25% 26% 29% 33% 38% 44% 50%

2016 年 5 月 31 日中国：环保


3. Two sources of revenue: Waste-to-energy projects are entitled to enjoy two sources

of revenue during the operation phase: 1) feed-in tariff from power sales to the grid at a favorable subsidized rate

(Rmb0.65/kWh), which we estimate contributes c.70% to revenue of a plant; 2) treatment fee from local governments at c.Rmb50-100/t.

However, for wastewater projects, only wastewater treatment fee is collected.

Exhibit 11: Waste-to-energy projects have higher IRR, higher margins, shorter payback period vs. wastewater projects

Source: Company data, Gao Hua Securities Research.

Hazardous waste: A sweet spot with high entry barriers Accelerated construction of capacity required to bridge the gap: Only 21% of industrial

hazardous waste received centralized disposal and treatment in 2012, according to China Environment Yearbook and China Statistical Yearbook on the Environment. However, we think

the actual annual size of hazardous waste could be significantly underestimated due to the lack of a valid survey on the industry, as evidenced by the fact that the central government aims to

determine the actual volume of hazardous waste by 2015. So far, no official reports have been released but we believe the actual volume should surprise the market significantly on the upside.

In 2012, the MEP issued the 12th Five-year Plan on hazardous waste pollution control and it stated that the estimated volume in 2015 should reach 60mt, implying a 15% CAGR since 2011 (official number of 34.3mt). However, the total licensed capacity was planned to grow by only 75% in the 12th Five-year Plan to 40.7mt (2015), leaving a gap of c. 20mt hazardous waste

improperly treated or untreated. For 2016-2020, if we assume a slower CAGR of 10%, the total hazardous waste volume China generates would reach 96mt, and this would require accelerated construction of hazardous treatment capacity, creating ample market growth opportunities.

Project licensing creates high entry barrier: Hazardous waste treatment is a highly

regulated market due to risks that it poses to the environment. China’s governments, from central to local, maintain strict control on granting operation licenses. As such, the high entry barrier

created by regulation offers incumbent players good opportunities to benefit from the strong demand outlook. Also, the license is granted by project instead of by waste type, which means a company needs to re-apply for a license for each individual project, and the process from project bidding, site selection, environmental impact assessment, public hearing, expert assessment, to final approval usually takes 2-5 years for each project. This in our view creates a barrier for newcomers, especially those without sufficient operational experience, and protects the market

share of industry leaders.

WASTE TO ENERGY PLANT WASTE WATER TREATMENT PLANTLeveraged IRR

(1/3 equity; 2/3 project loans)

Construction Cost Structure 40%: construction and installation 60%: construction and installation

(roughly as % of the total investment) 45%: equipment 25%: equipment

10%: admin. + other expenditures (incl. prep. stg.) 10%: admin. + other expenditures (incl. prep. stg.)

5%: interest expenditure 5%: interest expenditure

Construction Period 18 months 9‐10 months

Gross Margin for Construction Revenue 25%‐35% 15%‐25%

Gross Margin for Operation Revenue 50%‐70% 30%‐50%

Gross Margin for Finance Income 100% 100%

Feed‐in‐tariff (c. 70% of total revenue of a plant)

Waste Treatment Fee (c. 30% of total revenue of a plant)

Payback Period (as of operation) 7‐10 years 10‐12 years

10%‐15% 8%‐10%

Sources of Revenue Waste Water Treatment Fee

2016 年 5 月 31 日中国：环保


Exhibit 12: Preconditions for application of hazardous waste treatment license

Source: Ministry of Environmental Protection.

Market-oriented pricing model: In traditional public service sectors, project income relies

purely on government payments and the corporate players usually have limited pricing power. However, in the hazardous waste industry, the pricing model is market-oriented, where the treatment company has higher bargaining power and the price is subject to supply-demand in the market instead of government policy:

1) For hazardous waste recycling, the unit price depends on the amount of valuable resources (metals for instance) that could be recovered from the waste. 2) For hazardous waste disposal, the unit price depends on the negotiation between the treatment company and waste generating company subject to a cap price proposed by the government.

Waste water treatment (WWT): Operators looking for further opening-up of water market and consolidation opportunities According to MEP’s report to the NPC Standing Committee on Apr 26, 2016, China’s urban WWT treatment ratios have reached 91% by end-2015, surpassing the 12th FYP target of 85% and close to the 2020 target of 95%.

That said, we estimate total capacity CAGR for municipal WWT would slow down from 19% in the 11th FYP and 8% in the 12th FYP to further decline to 4% in 2016-20.

We expect WWT businesses in towns/countryside to still see high growth thanks to low penetration. However, we believe the returns of projects located in less developed areas are under pressure due to 1) immature billing systems and 2) lack of economy of scale.

2016 年 5 月 31 日中国：环保


Exhibit 13: Municipal WWT market relatively mature by penetration WWT treatment rates for city/county/town, 12th and 13th FYP targets

Source: NBS, MEP, State Council, MOHURD, Gao Hua Securities Research.

After investment peaks in 2015-17E, we expect WWT construction revenue to decrease 3% pa in 2016-20 and operations revenue to increase 7% pa during the same period.

Major assumptions for our forecasts:

90%/20% treatment ratios for municipal/rural WWT by 2020;

Unit construction cost c. Rmb2000/Rmb3000 per t/d for municipal/rural WWT plants by

2020;

WWT tariff of Rmb0.86/t in 2016 and rationalized to Rmb1.0/t in 2020 (NDRC, MOHURD and MOF required no less than Rmb0.95/1.4 for residential/non-residential users in cities and Rmb0.85/1.2 by end-2016);

1-A level WWT capacity as a % of the total to increase from 25% in 2014 to 80% in 2018 (MEP has been circulating revised WWT discharge standards and requiring all newly-

built plants should meet 1-A from mid-2016 and all existing plants in key areas should adopt 1-A by end-2017); and

Reclamation rates reached 15% in 2020 (“Water Ten” required reclamation rates should be more than 20%/30% for water-scarce/JJJ areas by 2020).

2010 2011 2012 2013 2014 2015 2020E

City - target 85% 95%

County - target 70% 85%

Town - target 30%

City - actual 82% 84% 87% 89% 91% 91%

County - actual 60% 70% 75% 78% 82%

Town - actual 9% 10%

85%

95%

70%

85%

30%

82%

91%

60%

82%

10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%City -

target

County -

target

Town -

target

City -

actual

County -

actual

Town -

actual

2016 年 5 月 31 日中国：环保


Exhibit 14: We expect investment in water plants to peak in 2015-17… Construction investment in water plants

Exhibit 15: …and service income growth to slow down Operation revenue from water services



Water operators, however, should continue to outgrow the overall market on:

The opening up of the water market to non-state capital. Only 42%/20% of

WWT/water supply plants are operating under concessions (according to an NDRC news briefing in May 2015). We think leading water players are well positioned to benefit

from the continuous opening up.

Market share expansion through M&A. Project returns are under pressure due to

headwinds such as the new VAT policy and tight budgets of local governments. We expect industry leaders with economy of scale and access to cheap financing to further consolidate the currently fragmented market.

Exhibit 16: Water and solid waste segments the most active in M&A deals Total size of major proposed M&A deals in 2014 to 2016 ytd

Source: Company data, Wind

Water: Total addressable market of Rmb4.4tn in 2016E-20E Aside from the Rmb1.1tn investment in water/WWT plants in the 13th FYP, we forecast investment of Rmb1.5tn in the sponge city program and Rmb0.4tn expenditure on waterbody renovation. Together with a water plant services market of Rmb1.4tn in 2016E-20E, we expect the total addressable water market to grow to Rmb4.4tn in the coming five years.

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016E2017E2018E2019E2020E

Rmb bn

Municipal WWT Rural WWTWWT Upgrade Water supplyWater supply upgrade Wastewater recycleIndustrial WWT Seawaer desalinationWWT connection Water supply connection

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016E2017E2018E2019E2020E

Rmb bn

Municipal WWT Rural WWT

Water supply Industrial WWT

Seawaer desalination Wastewater recycle

33

19

9 7

4 4 3 2 2

-

5

10

15

20

25

30

35

40

Water Municipal

solid waste

Air Energy

conservation

WEEE HWT Monitoring Soil Others

Rmb bn

2016 年 5 月 31 日中国：环保


Exhibit 17: Rmb3tn investment in water-related industries in 2016E-20E

Source: E20, NDRC, MEP, State Council, MOHURD, news compiled by Gao Hua Securities Research (H2O-China and China Environmental News)

We believe the government will further encourage private capital to participate in the multi-trillion green-up opportunities and most projects will be carried out in the PPP model. Key beneficiaries would be environmental service providers with a strong balance sheet and proven track record

and reputation in the industry.

Water plant,

913

Water plant,

1,132

Waterbody

renovation, 280 Waterbody

renovation, 400

Sponge City,

1,464

-

500

1,000

1,500

2,000

2,500

3,000

3,500

12th FYP 13th FYP

Rmb bn Water plant Waterbody renovation Sponge City

2016 年 5 月 31 日中国：环保


Potential crisis in backyard: Gearing risks and capital management

Since 2014 when the State Council and NDRC laid out PPP guidelines for urban facilities, the environment industry has attracted a surge in private investment.

As more and more projects are carried out based on PPP (including BOT/TOT) models, the huge upfront investment and inevitable mismatch between cash inflow and outflow across a project’s life cycle could lead to real liquidity risks.

Gearing risks: Potential bottleneck Technically, PPP is a form of long-term financing that allows local governments to leverage a corporate entity’s balance sheet to deliver public goods. Hence, balance sheet pressure for

environmental companies has been rising from 2013 to 2016 ytd, affecting even listcos with relatively easy access to equity financing.

Except for the solid waste sector (high growth started from 2013), all subsectors within the environmental space saw increasingly higher gearing since 2014. The monitoring equipment sector has been able to retain a positive cash balance given it’s an upstream players that sells equipment (rather than services) directly to customers.

Exhibit 18: Gearing surging despite active equity financing from secondary market in 2015-16ytd Median net gearing of China’s 65 listcos in 2013-1Q16

Source: Wind, Gao Hua Securities Research.

In our view, players with high gearing and high cost financing could hardly succeed in such a rapidly growing industry in the face of liquidity risks. As a result, we believe only firms with superior working capital management and access to cheap financing would continue to outgrow the already fast-growing industry.

7%

29%

-2%

-23%

7%

17%12%

-21%

24% 24%

12%

-12%

28% 27%22%

-7%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Air Solid waste Water Monitoring

2013 2014 2015 1Q16

2016 年 5 月 31 日中国：环保


Exhibit 19: We expect gearing to increase from 2015 to 2018 (except for Tianjin Capital) Gearing ratios for companies under our coverage


Working capital management: A look at CFO Stringent financial conditions of customers (mostly local governments and industrial polluters) have resulted in surging receivables on environmental service providers’ balance sheets.

The average receivable days of China’s 65 environmental listcos have almost doubled from 103 in 2010 to 194 in 1Q16, driving cash conversion cycles up from -677 to 223.

Exhibit 20: Environmental service providers have been struggling with surging receivables… Average cash conversion cycle of China’s 65 listcos

Exhibit 21: …while quality leaders are better positioned to tackle the challenge

Note: DIO represents days inventory outstanding; DSO, days sales outstanding; and DPO, days payable outstanding; cash conversion cycle= DIO+DSO-DPO



However, we believe industry leaders with strong bargaining power along the value chain, such as OriginWater, Dongjiang and Tus-Sound are better positioned to convert investment to cash by:

1) transmitting the liquidity pressure upstream by squeezing suppliers/vendors and

2) Collecting tariff/subsidy/refund from local government/customers in a timely manner.

173%

134%

73%

66%

65%

62%

62%

31%

3%

-50% 0% 50% 100% 150% 200%

TUS - Sound

BEWG

Dongjiang

GrandBlue

WBD

Tianjin MOTIMO

CEI

OriginWater

Tianjin Capital2015

2018E

50

75

100

125

150

175

200

225

250

2012 2013 2014 2015 1Q16

Day DIODSODPOCash conversion cycle

Cash conversion cycle 2012 2013 2014 2015 Rating

OriginWater -13 -17 -72 -93 Buy

TUS - Sound 76 132 129 38 Buy

Dongjiang (H) 53 64 54 15 RS

BEWG 659 575 578 523 Buy

Tianjin Capital (H) -40 -3 7 -87 Neutral

CEI 606 517 573 587 Buy

GrandBlue -292 -158 -183 -93 Neutral

WBD 59 35 156 163 Neutral

Tianjin MOTIMO 257 306 368 370 RS

2016 年 5 月 31 日中国：环保


Capital raising capabilities: A look at CFF Aside from strong working capital management capabilities, we think it is equally important to have sustained access to low-cost financing for environmental service providers to undertake projects with prolonged concession periods.

According to our sensitivity analysis on 65 listed A+H share companies in the environmental space, every 100bp change in borrowing costs would lead to a 5% change in profit before tax based on 2015 financials.

Exhibit 22: Financial burden eroding I/S Sensitivity analysis: Change in 2015 profit before tax for each 100bp change in borrowing costs


Debt financing Environmental firms have seen financing costs declining especially since 2014, thanks to liquidity

easing and favorable industry policies.

Companies under our coverage have been seeking various ways to lower their cost of capital with support from:

Low-cost overseas banking facilities such as IFC: CEI and BEWG

Major shareholders: OriginWater (CDB), WBD (Chairman) and Tus-Sound (Tsinghua Holdings)

For instance, we compare Tus-Sound’s three-year medium term note (MTN) interest rate with the sector average financial cost and benchmark interest rates (PBOC long-term borrowing costs) in Exhibit 23.

2H14-1H15: The firm significantly benefited from a PBOC rate cut and that applied to the whole sector;

Since September 21, 2015, Tus-Sound’s borrowing costs have been declining sharply

after Tsinghua Holdings became its major shareholder (30% stake).

1%

3%

5%5% 5% 5%

7%7%

8%

9%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

OriginWater TUS - Sound Tianjin Capital CEI Sector average Dongjiang WBD Tianjin MOTIMO GrandBlue BEWG

2016 年 5 月 31 日中国：环保


Exhibit 23: Financial costs declining since 2014….. Sector average financial costs of China’s 65 A/H listcos vs. PBOC long-term borrowing rates

Exhibit 24: …and industry leaders have been expanding on lower funding costs 2015 financial costs



Equity financing In 2015-16ytd, 31 out of 80 public environmental names (both A/H) have completed (or announced but not completed) 1-2 rounds of equity financing from the secondary stock market.

Exhibit 25: Active equity financing in 2015-16ytd Bubble size stands for amount of proceeds in US$; hollow circle denotes announced but not completed

Note: Cash stands for cash subscription for new shares; asset represents stock issuance in exchange for asset acquisition


3%

4%

5%

6%

7%

8%

9%

10%

6/1

/2011

9/1

/2011

12/1

/2011

3/1

/2012

6/1

/2012

9/1

/2012

12/1

/2012

3/1

/2013

6/1

/2013

9/1

/2013

12/1

/2013

3/1

/2014

6/1

/2014

9/1

/2014

12/1

/2014

3/1

/2015

6/1

/2015

9/1

/2015

12/1

/2015

3/1

/2016

Tus-Sound 3-y MTN

Sector average

Benchmark

Tsinghua Holdings

became its biggest

shareholder

3.6%

4.2%

4.5%

6.0%

6.2%

6.3%

7.2%

7.5%

7.8%

0% 2% 4% 6% 8% 10%

CEI

BEWG

WBD

OriginWater

TUS - Sound

Dongjiang H

GrandBlue

Tianjin Capital A

Tianjin MOTIMO RS

Sell

Neutral

RS

Buy

Buy

Neutral

Buy

Buy

BEWG, $223mn

TUS - Sound,

$1,402mn

GrandBlue -

cash, $137mn

WBD, $350mn

Tianjin

MOTIMO,

$59mn

OriginWater -

cash, $921mn

GrandBlue -

asset, $110mn

OriginWater -

asset, $166mn

-20

0

20

40

60

80

100

120

140

4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%

Valuation X

(2016E P/E)

Financial cost - 2016

2016 年 5 月 31 日中国：环保


Changes to earnings estimates reflect 2015 and 1Q16 results

We revise FY15-20E earnings for our coverage to reflect 2015 and 1Q16 results and the latest project updates by companies (see below for company-specific details). Our 12-month target prices for our coverage are based on 2020E EPS and an exit P/E of 19.5X based on the historical (1991-2015) P/E average of global peers (vs. 19.3X based on average in 1991-2014 previously). We then discount back to 2016E using an unchanged cost of equity of 9.5% (H-shares) and 9.0%

(A-shares).

Exhibit 26: Our earnings estimates vs. consensus

Source: Gao Hua Securities Research, Bloomberg, Wind

Dongjiang: We revise 2016E-20E revenue by -13% to +6% to reflect 1) the VAT policy change,

2) our new metals price forecasts; and 3) delayed project pipeline. Accordingly, we adjust earnings by -10% to +9%. The potential disposal of its WEEE business to Tus-Sound is not complete (announced on April 12, 2016).

BEWG: We revise our 2016E-20E earnings by -4% to +4% to reflect the company’s guidance on

wastewater volume, construction pipeline and our lower waste water tariff growth assumptions benchmarked to FY15 realized tariff and factor in the effect of the VAT refund policy change. We also lower the growth of BOT revenue given the company’s high gearing poses a constraint in terms of taking on more debt (FY15 net gearing of 121% vs. company guidance of not exceeding 150% in future years).

CEI: We revise our 2016E-20E earnings by 2%-12% to reflect the updated project pipeline

released by the company with the 2015 annual report and updated our forecast for solid waste treatment fees.

Tianjin Capital: We cut 2016E-20E earnings by 30% to 37% mainly to reflect a lower base for

our forecast due to FY15 net profits (18% below our expectation), specifically in 1) lower wastewater tariff assumptions on the change in VAT refund policy (full-year impact in FY16 vs. half year impact in FY15); 2) lower FY16 volume guidance (-3% yoy); and 3) higher cost

assumption (which we benchmark to FY15).

OriginWater: We revise FY16E-20E revenue by -4% to +8% to reflect its updated project

pipeline. Since our last update on December 22, 2015, the company has secured another Rmb11bn worth of projects and signed five framework agreements with a total investment of Rmb26bn. However, due to margins deteriorating by 2ppt (headwind for PPP projects sector-wide), we cut our earnings forecast by 12%-14%.

Tus-Sound: We raise revenue by 18%-29% in 2016E-18E on its aggressive expansion in the

sanitation market. However, we think the return outlook of these light-asset projects is not exactly proven. We cut our FY16E-20E earnings by 9%-13% on lower margins at the solid waste

1Q16v.s. GS 2016

2015A 2016E 2017E 2018E 2019E 2020E 2015A 2016E 2017E 2018E 2019E 2020E 2016E 2017E 2018E 2015A 2016E 2017E 2018E 2019E 2020E

Dongjiang 333 481 678 811 946 991 85 18% -3% -10% -9% -2% 9% 7% 4% 11% 1% 32% 45% 41% 20% 17% 5%

Dongjiang (A) 333 481 678 811 946 991 85 18% -3% -10% -9% -2% 9% 7% 4% 11% 1% 32% 45% 41% 20% 17% 5%

BEWG 2,455 3,024 3,483 3,824 4,117 4,386 n.a. n.a. 4% 4% -3% -3% -4% -4% 2% -4% -15% 37% 23% 15% 10% 8% 7%

CEI 2,085 2,855 3,505 4,004 3,949 4,033 n.a. n.a. -1% 2% 11% 12% 6% 7% 9% 6% 5% 22% 37% 23% 14% -1% 2%

Tianjin Capital 331 336 339 364 404 439 96 29% -18% -30% -36% -37% -35% -33% -4% -9% -10% 7% 2% 1% 7% 11% 9%

Tianjin Capital (A) 331 336 339 364 404 439 96 29% -18% -30% -36% -37% -35% -33% -4% -9% -10% 7% 2% 1% 7% 11% 9%

OriginWater 1,362 2,073 2,859 3,754 4,790 5,237 35 2% -6% -13% -12% -12% -14% -14% -2% -1% 5% 45% 52% 38% 31% 28% 9%

Tus-Sound 931 1,239 1,693 2,054 2,309 2,491 195 16% -5% -13% -11% -9% -10% -12% -3% -1% -1% 16% 33% 37% 21% 12% 8%

GrandBlue 403 527 636 743 767 758 106 20% 0% 0% -3% -2% -6% -10% 1% -2% -15% 31% 31% 21% 17% 3% -1%

WBD 290 424 604 757 872 954 70 17% -16% -14% -12% -11% -11% -11% -36% -27% n.a. 51% 46% 43% 25% 15% 9%

Tianjin MOTIMO 53 72 88 108 130 142 1 2% 9% 0% -17% -30% -41% -45% -35% -44% -36% -38% 36% 22% 22% 20% 10%

Diff. from cons.GSe net income - new(mn reporting currency)

YoYDiff from previous

2016 年 5 月 31 日中国：环保


segment and new VAT policy for its water segment. The potential acquisition of Dongjiang’s WEEE business is not complete.

GrandBlue: We cut FY17E-20E earnings by 3% to 10% largely to reflect the new VAT policy and

updated project pipeline.

WBD: We cut FY16E-20E earnings by 11%-14% on lower revenue (15%-24%), mainly

attributable to its slower-than-expected progress on the Wuhu PPP bundle (none of the projects have materialized so far after the framework agreement signed in January 2015).

Tianjin MOTIMO: We cut FY17E-20E earnings by 17%-45% due to a combined result of higher

SG&A and lower income from associates (most PPP entities with local governments are still

ramping up).

Exhibit 27: Key Risks

Source: Goldman Sachs Global Investment Research.

Stock Ticker Rating Key risks

BEWG 0371.HK Buy1) Payment delays from local governments

2) Squeezed margins due to increased competition

Tus-Sound 000826.SZ Buy WtE project delay due to pipeline jam

OriginWater 300070.SZ Buy Project delays due to weak financials of local governments

CEI 0257.HK Buy

1) Exchange rate risk: CEI estimated a 5% decrease in earnings for every 10% Rmb depreciation over other

currencies (FY15)

2) Policy risk: potential changes in subsidized power tariff for waste-to-energy projects

3) Receivable risk: delayed payments by local governments

Tianjin Capital (H) 1065.HK Neutral1) Higher/lower-than-expected water tariff adjustment, higher/lower-than-expected water volume growth

2) Faster/slower-than-expected receivable collection

Tianjin Capital (A) 600874.SS Sell1) Higher-than-expected water tariff adjustment, higher-than-expected water volume growth

2) Faste-than-expected receivable collection

GrandBlue 600323.SS NeutralUpside: Faster-than-expected inorganic growth with material acquisitions

Downside: Further deterioration in PNG/LPG margins

WBD 300055.SZ NeutralUpside: Stronger-than-expected order momentum

Downside: Slower-than-expected project progress

2016 年 5 月 31 日中国：环保


Introducing M&A framework, updating target prices

The strong market growth outlook combined with the high market fragmentation makes M&A a very active theme in the China environment industry. From 2014 to ytd 2016, at least RMB83bn worth of M&A transactions have been closed with the solid waste and water subsectors seeing the most active M&A activity.

Exhibit 28: Water and solid waste segments the most active in M&A deals Total size of major proposed M&A deals in 2014-16ytd

Source: Company data, Wind.

We introduce our M&A framework to evaluate potential M&A opportunities across our China

environmental coverage, considering 1) the shareholding structure; 2) qualitative factors (technological edge, national exposure and cost synergy); and 3) quantitative factors (market cap and valuation).

Due to the considerably different valuations/market cap/shareholding structure for dual-listed companies (Tianjin Capital and Dongjiang), we have separated H/A-shares for the M&A analysis. However, as we define the whole company as a potential M&A target, we assign the higher of A

and H score as the overall score for the company.

Shareholding structure: SOE blocking stake: Some companies have large significant SOE shareholders that

provide a blocking stake which would make them less attractive from an M&A perspective. For instance, China Everbright Group owns 41% of CEI. WBD is not an SOE and hence we assign a value of 1 under this metric.

Ownership dispersion: The more dispersed the shareholding structure the more likely

is a company to be acquired.

Management openness to a transaction according to their public communication and

remarks in analyst briefing

Qualitative factors: Cost synergy: A company with upstream strength (equipment/engineering) is more

likely to create synergy once acquired.

Technological edge: A company with proprietary technology is more likely to be

acquired.

National exposure: A regional player is much more likely to be acquired when a

competitor is expanding geographically.

33

19

9 7

4 4 3 2 2

-

5

10

15

20

25

30

35

40

Water Municipal

solid waste

Air Energy

conservation

WEEE HWT Monitoring Soil Others

Rmb bn

2016 年 5 月 31 日中国：环保


Quantitative factors (at May 30 close): Valuation: A company trading at lower valuation multiples compared to peers is more

likely to be acquired (for H-shares, we rank 4 for companies with a 2017E P/E higher than 30x, 3 for companies between 20x and 30x, 2 for companies between 10x and 20x, and 1 for companies less than 10x; for A-shares, we rank 4 for companies with a 2017E P/E higher than 50x, 3 for companies between 30x and 50x, 2 for companies between

10x and 30x, and 1 for companies less than 10x )

Market cap: A small company is more likely to be acquired (we rank 4 for companies

with market cap higher than US$3bn, 3 for companies between US$1.5bn and US$3bn, 2 for companies between US$1bn and US$1.5bn, and 1 for companies less than US$1bn).

Exhibit 29: Our M&A framework suggests WBD has relatively high M&A potential

Note: We have excluded Dongjiang and Tianjin MOTIMO from the M&A framework analysis as we are Rating Suspended.


We then assign an M&A score as a means of ranking companies under coverage from 1 to 4,

with 1 representing high (30%-50%) probability of M&A activity, 2 representing medium (15%-30%) probability, 3 representing low (10%-15%) probability and 4 representing minimal to no probability (0%-10%).

For companies ranked 1 or 2, in line with our standard departmental guidelines we incorporate an M&A component into our target price.

Within this context, we rank WBD “2", implying 15%-30% probability of M&A activity. As a result,

we weight WBD’s M&A value by 15% (reflecting the probability implied by this ranking) within our price target methodology.

Cost

synergy

Technolog

y edge

National

exposure

Mkt cap

(US$ mn)

Market

cap

2017E

P/E (X)Valuation

BEWGBeijing Enterprise Group,

47%4 4 4 4 4 4 5,560 4 12 2 4

CEIChina Everbright Group,

41%; RRJ, 7%4 4 4 4 3 4 4,798 4 11 2 4

OriginWaterChairman, 21%; Vice

Chairman, 14%, CDB 10%2 1 3 3 2 4 2,774 3 16 2 3

TUS-SoundTsinghua Holdings, 30%;

Chairman, 15%3 3 3 3 2 3 3,746 4 15 2 3

GrandBlue

Guangdong Foshan

SASAC, 36%; C&G HK,

12%

3 3 4 3 4 2 1,369 2 14 2 3

WBDChairman, 27%; CECEP,

5%2 1 2 2 2 2 1,911 3 24 2 2

Tianjin Capital - A Tianjin SASAC, 50% 4 4 4 4 4 2 1,612 3 31 3 4

Tianjin Capital -H Blackrock, 7% 1 1 4 4 4 2 737 1 14 2 2

Tianjin Capital 4

Company

Qualitative FactorsSOE blocking

stake

Final

Score

Ownership

dispersion

Major shareholder (>=5%)

and stake %

Management

openness to

transaction

Quantitative Factors

2016 年 5 月 31 日中国：环保


M&A valuation We calculate M&A values by applying P/B valuation consistent with the average multiple of historical transactions available.

For WBD, we adopted 4.1X 2016E P/B (average of 33 major upstream WWT deals in 2015-16ytd) which yields an M&A value of Rmb27.0/sh.

Exhibit 30: Recent proposed M&A deals imply 4.1x P/B in upstream WWT area 33 major proposed deals in 2015-16ytd in upstream WWT area

Source: Company data.

We continue to base our valuation on our 2020E earnings estimates and discount back to 2016E

fair value. To estimate fair values for companies under our coverage post their high-growth phases, we assume an exit P/E multiple of 19.5X, which is in line with the past 25-year historical average P/E (1991-2015) for global environmental services providers.

Our discount rates are based on the cost of equity, which we estimate at 9.0% for A shares and 9.5% for H shares. The risk-free rate for A/H (3%/3.5%) and equity risk premium (6%) are based on our macro research team’s latest estimates. We assume beta equals 1 for both A- and H-

share environmental stocks in 2020E when we expect the industry to reach a mature stage.

Ticker Buyer Target Equity %Consideration

(Rmb mn) Total valuation

(Rmb mn) Announcement

date P/B

000925.SZ United Science & Technology Suzhou Technology and Environmental 100% 682 682 Apr-16 8

300437.SZ Henan Qingshuiyuan Technology Tongsheng Environmental 100% 495 495 Apr-16 6

300425.SZ Sichuan Scime Sci. & Tech. Sitong Environmental 65% 215 330 Mar-16 2

000711.SZ Heilongjiang Kingland Technology Muhe Water Conservation Co. 100% 1,588 1,588 Feb-16 4

300362.SZ Chengdu Techcent Environment BWT 100% 1,628 1,628 Feb-16 4

600401.SH Hareon Solar Technology Yuanyuan Water 100% 513 513 Jan-16 1

600008.SS Beijing Capital Co. Kaichuang Environment 19% 28 145 Jan-16 3

002080.SZ Sinoma Science & Technology Sinoma WWT 55% 45 82 Dec-15 4

300066.SZ Sanchuan Wisdon Technology Qingquan Water Industry 11% 5 45 Dec-15 3

002514.SZ Suzhou Boamax Technologies Jiechi Technology 100% 1,060 1,060 Dec-15 10

002310.SZ Beijing Orient Landscape & Ecology Zhongshan Environmental 60% 637 1,062 Nov-15 2

002483.SZ Jiangsu Rainbow Heavy Industries Beijing BCEG Golden Sources Environment 6% 20 364 Nov-15 10

300145.SZ Nanfang Zhongjin Environment China EIA 30% 216 720 Nov-15 1

300070.SZ Beijing OriginWater Jiu'an Construction 50% 1,232 2,472 Oct-15 4

300388.SZ Anhui Guozhen Environment GEAS 100% 35 35 Oct-15 6

6035881.SH Beijing Geoenviron Yuanjie Water Technology 42% 60 141 Sep-15 2

300388.SZ Anhui Guozhen Environment McWong Environmental 72% 369 511 Aug-15 3

002658.SZ Beijing SDL Technology Shenzhen Kedwei Technology 60% 1 2 Aug-15 2

600290.SS Huayi Electric Zhejiang Yeking Environmental 85% 36 42 Jul-15 7

600008.SS Beijing Capital Co. Chengdu Bangjie 100% 1 1 Jul-15 1

000603.SZ Shengda Mining Gansu GB Water 6% 28 432 Jun-15 3

300266.SZ Xingyuan Environment Technology Hangzhou Enjoy Environment 51% 47 92 Jun-15 2

300425.SZ Sichuan Scime Sci. & Tech. Jiangsu Huada 100% 383 383 Jun-15 2

300145.SZ Nanfang Zhongjin Environment Jinshan Environment 100% 1,794 1,794 May-15 2

600481.SS Shaungliang Eco-Energy Systems Shangda Environment 64% 217 337 May-15 6

002255.SZ Suzhou Hailu Heavy Industry Zhangjiagang Gerui Environment 100% 625 625 May-15 5

000068.SZ Shenzhen Huakong Seg THHDG 17% 55 322 May-15 4

300362.SZ Chengdu Techcent Environment Centrisys Corporation 80% 406 507 May-15 8

0855.HK China Water Affairs Goldtrust Water 100% 702 702 Apr-15 1

000605.SZ Bohai Water Industry Jiacheng Environmental Protection 55% 798 1,450 Apr-15 5

600126.SH Hangzhou Iron & Steel Unisplendour Environment 88% 584 667 Mar-15 1

300152.SZ Xuzhou Kerong Environmental Resources Beijing Innogreen Technology Co 51% 87 170 Mar-15 11

600068.SS China Gezhouba Group KWIG 75% 473 630 Jan-15 1

Average 4.1

Weighted average 4.1

2016 年 5 月 31 日中国：环保


Exhibit 31: Exit P/E of 19.5x based on global peer historical average P/E Global peers historical P/E (1991-2015)

Note: Annual average P/E is calculated by excluding all historical P/E ratios above 40x and the max and min of each year.

Source: Bloomberg,

Exhibit 32: Our ratings and 12-month target prices

Note: Current price as close of May 26, 2016.

Source: DataStream, Gao Hua Securities Research

For the H-share environmental stocks, we upgrade China Everbright International (CEI) to Buy from Neutral and maintain Buy on Beijing Enterprise Water (BEWG). We downgrade Tianjin

Capital (H) to Neutral from Buy.

For the A-shares, we maintain Buy on OriginWater and Tus-Sound, Neutral on GrandBlue and WBD, Sell on Tianjin Capital (A).

We remain Rating Suspended on Tianjin MOTIMO (300334.SZ) and Dongjiang (002672.SZ/895.HK).

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GSGS covered Country Ticker

Waste Management US WM NA NA NA NA 34.3 NA NA 28.1 8.7 23.1 25.9 18.0 22.9 21.2 20.1 20.3 15.8 15.0 17.1 19.1 15.3 16.1 NA 21.2 20.0

Waste Connections US WCN NA NA NA NA NA NA NA NA 16.4 27.8 21.8 20.3 17.4 22.5 19.7 24.7 21.5 22.6 22.5 22.4 22.5 24.1 26.2 23.2 30.7

Republic Services US RSG NA NA NA NA NA NA NA 16.2 12.1 13.3 16.1 14.8 19.3 21.9 21.3 20.0 18.9 31.8 19.4 17.4 14.1 16.8 19.6 20.6 21.4

Stericycle US SRCL NA NA NA NA NA NA NA 31.6 22.9 NA NA 28.4 30.8 26.0 28.7 31.3 NA 30.1 26.3 31.6 26.4 28.3 31.0 30.7 27.6

Veolia Environnement Europe VIE.PA NA NA NA NA NA NA NA NA NA 21.3 NA 24.3 NA 21.2 23.9 30.3 28.2 31.3 17.9 20.4 NA NA NA NA 31.7

Average

BloombergNot covered by GS Country Ticker

Clean Harbors US CLH US 30.4 23.1 25.4 30.3 NA NA NA NA NA 3.0 8.4 NA NA NA 15.7 17.0 20.9 21.6 29.6 17.3 25.9 18.6 29.1 27.2 27.6

Covanta Holding Corp US CVA US NA NA NA NA 25.5 NA 25.9 25.4 NA NA NA NA NA 22.8 32.0 29.4 28.2 26.5 NA NA 27.5 24.9 NA NA 18.7

Aqua America Inc US WTR US 12.2 13.0 14.5 13.4 13.8 19.1 33.5 26.9 19.0 25.3 26.8 22.4 29.5 28.8 38.5 33.0 30.7 28.2 23.0 25.8 24.9 19.3 20.5 22.2 24.8

Progressive Waste Solutions Canada BIN CN NA NA NA NA NA NA NA NA NA NA NA NA 33.9 33.8 38.5 NA 37.1 11.3 24.8 30.0 14.8 22.3 25.6 25.5 20.3

Transpacific Industries Group Ltd Australia TPI.AX NA NA NA NA NA NA NA NA NA NA NA NA NA NA 19.3 28.1 30.3 9.7 NA 14.9 NA NA NA NA NA

Seche Environnement Europe SCHP FP NA NA NA NA NA NA 24.4 26.1 26.3 35.4 27.2 NA NA NA 22.1 31.8 NA 12.1 20.7 18.5 15.5 NA 19.2 16.4 13.8

Pennon Group Europe PNN LN 4.6 5.1 8.2 8.2 11.3 8.7 7.3 NA 11.7 5.5 16.0 13.3 14.9 13.9 20.3 NA 22.1 17.0 15.7 12.9 12.9 14.8 NA 19.1 25.6

Severn Trent Europe SVT LN NA 4.5 7.4 7.8 7.8 6.6 7.9 NA 9.4 7.7 16.9 16.1 24.8 14.2 20.2 21.1 13.5 15.9 NA 11.3 12.7 21.3 18.8 19.6 42.6

Shanks Group Europe SKS LN 20.2 19.2 NA NA 15.2 15.0 16.6 21.8 22.4 16.0 19.4 26.5 22.4 32.0 26.2 20.8 20.2 21.7 NA 21.0 20.7 15.2 NA NA NA

Metro Pacific Investments Corp Philippines MPI PM NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 17.5 13.4 27.4 16.3 18.5 15.5 15.1 15.1

Average 19.5 16.2 12.4 11.3 10.8 16.4 11.9 18.7 25.7 16.3 17.5 20.4 20.3 23.9 23.4 24.4 25.8 23.7 20.8 20.8 20.6 19.0 19.7 22.7 21.7 24.0

2016E 2017E 2018E 2019E 2020E

H shares

CEI 0.64 0.78 0.89 0.88 0.90 7.99 19.5x 12.2 NA 0% 12.2 53% Buy Neutral 11.30 8%

BEWG 0.35 0.40 0.44 0.47 0.50 4.78 19.5x 6.8 NA 0% 6.8 42% Buy Buy 7.00 -3%

Dongjiang (H) 0.64 0.85 1.00 1.16 1.22 11.48 19.5x NA NA NA N.A. N.A. RS RS NA NA

Tianjin Capital (H) 0.27 0.26 0.27 0.30 0.33 3.94 19.5x 4.5 NA 0% 4.5 14% Neutral Buy 6.60 -32%

A shares

OriginWater 0.67 0.92 1.21 1.54 1.69 14.98 19.5x 23.3 NA 0% 23.3 56% Buy Buy 26.78 -13%

TUS-Sound 1.45 1.99 2.41 2.71 2.92 29.49 19.5x 40.4 NA 0% 40.4 37% Buy Buy 45.60 -11%

GrandBlue 0.69 0.83 0.97 1.00 0.99 11.75 19.5x 13.7 NA 0% 13.7 17% Neutral Neutral 15.00 -9%

Dongjiang (A) 0.55 0.78 0.93 1.09 1.14 17.41 19.5x NA NA NA N.A. N.A. RS RS NA NA

WBD 0.49 0.70 0.87 1.01 1.10 17.38 19.5x 15.2 27.0 15% 17.0 -2% Neutral Neutral 19.90 -15%

Tianjin Capital (A) 0.24 0.24 0.25 0.28 0.31 7.50 19.5x 4.3 NA 0% 4.3 -43% Sell Sell 6.30 -32%

Tianjin MOTIMO 0.26 0.32 0.39 0.47 0.51 18.05 19.5x NA NA NA N.A. N.A. RS RS RS NA

Rating-

Old

Target

P/E

P/E-

based

value

Upside/

downside

potential

M&A

Weight

Blended

TP (12m)

M&A

valueStock

EPS Current

priceRating TP-chg

TP-

Old

2016 年 5 月 31 日中国：环保


Exhibit 33: Our ratings and 12-month target prices

Note: Current prices as of May 26, 2015.


Ticker Prev. New Currency Prev. NewCurrent

price

Potential

up/down

H sharesCEI 0257.HK Neutral Buy HKD 11.30 12.2 7.99 53%

BEWG 0371.HK Buy Buy HKD 7.00 6.8 4.78 42%

Dongjiang (H) 0895.HK RS RS HKD NA NA 11.48 N.A.

Tianjin Capital (H) 1065.HK Buy Neutral HKD 6.60 4.5 3.94 14%

A sharesOriginWater 300070.SZ Buy Buy CNY 26.78 23.3 14.98 56%

TUS-Sound 000826.SZ Buy Buy CNY 45.60 40.4 29.49 37%

GrandBlue 600323.SS Neutral Neutral CNY 15.00 13.7 11.75 17%

WBD 300055.SZ Neutral Neutral CNY 19.90 17.0 17.38 -2%

Dongjiang (A) 002672.SZ RS RS CNY NA NA 17.41 N.A.

Tianjin Capital (A) 600874.SS Sell Sell CNY 6.30 4.3 7.50 -43%

Tianjin MOTIMO 300334.SZ RS RS CNY NA NA 18.05 N.A.

Rating 12-month Target prices

2016 年 5 月 31 日中国：环保


CEI (0257.HK): Market leader positioned to grow faster; up to Buy

Source of opportunity As a leader in the China’s waste-to-energy market, we expect the company to benefit from the acceleration of investment in waste incineration facilities in the 13th Five-Year Plan (2016-20) as the current incineration ratio (26% in FY15) is far behind the government’s target (50% by 2020). Industry leaders like CEI should be able to expand its market share (see Exhibit 36) given its

operational excellence, competitive technology, and balance sheet capability (net gearing to peak at 68% in 2017E).

We forecast earnings CAGR of 24% in FY15-18E supported by its strong capacity pipeline (2x operating capacity) and low financing cost of 3.6% (FY15, lowest among all peers). Our earnings forecasts are 5%-9% above Bloomberg consensus and reflect our confidence in CEI’s execution given its

exceptional track record and the relationship of its parentco (China Everbright Group) with local governments. As a result, we upgrade China Everbright International to Buy from Neutral and our new 12-month target price of HK$12.2 implies 53% upside. (May 26 close)

Catalysts 1) Announcement of the 13th Five-Year Plan for the environmental sector (expected by EOY 2016) would unveil the overall investment plan for

the next five years in the environmental space and more specifically in the waste-to-energy sector. We believe this would create a strong policy sentiment. 2) Further capacity expansion through M&A. We expect the company to

continue to do M&A, especially for the water segment and hazardous waste treatment business. The company acquired Singapore water listco Hankore

and Dalian water company Dongda in 2013/14, leading to 70% wastewater capacity growth.

Valuation Our 12-month target price of HK$12.2 (HK$11.3 previously) is based on 2020E EPS and a target P/E of 19.5X (historical average P/E of global peers in 1991-2015 vs. 19.3X based on 1991-2014 average previously). We then discount back the 2020E fair value to 2016E using a cost of equity of 9.5%

(unchanged, same for all H-shares).

The stock is currently trading at a 2017E P/E of 10.6x and P/B of 1.7x vs. historical average P/E of 18x and 2.2x since 2011, while its 2017E ROE of 17% is 4ppt higher than its historical average of 13%. We view the risk-reward profile as attractive for CEI.

Key risks 1) Exchange rate risk: CEI estimated a 5% decrease in earnings for every 10% Rmb depreciation over other currencies (FY15); 2) Policy risk: potential changes in subsidized power tariff for waste-to-energy projects; 3) Receivable risk: delayed payments by local governments.

INVESTMENT LIST MEMBERSHIPAsia Pacific Buy list

Coverage View: Neutral

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the investment

profile measures please refer to the

disclosure section of this document.

China Everbright International Ltd. (0257.HK)

Asia Pacific Industrials Peer Group Average

Key data Current

Price (HK$) 8.31

12 month price target (HK$) 12.20

Market cap (HK$ mn / US$ mn) 37,259.6 / 4,797.7

Foreign ownership (%) --

12/15 12/16E 12/17E 12/18E

EPS (HK$) 0.46 0.64 0.78 0.89

EPS growth (%) 22.4 36.9 22.8 14.2

EPS (diluted) (HK$) 0.46 0.64 0.78 0.89

EPS (basic pre-ex) (HK$) 0.46 0.64 0.78 0.89

P/E (X) 26.2 13.1 10.6 9.3

P/B (X) 3.2 1.9 1.7 1.5

EV/EBITDA (X) 18.0 11.0 9.9 9.1

Dividend yield (%) 1.5 1.9 2.4 2.7

ROE (%) 12.5 15.7 17.0 17.0

CROCI (%) 36.1 33.3 34.1 32.7

18,000

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

7

8

9

10

11

12

13

14

15

May-15 Sep-15 Dec-15 Mar-16

Price performance chart

China Everbright International Ltd. (L) Hang Seng Index (R)

Share price performance (%) 3 month 6 month 12 month

Absolute 0.5 (29.2) (43.5)

Rel. to Hang Seng Index (6.9) (24.5) (24.8)

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/30/2016 close.

2016 年 5 月 31 日中国：环保


Driver #1: Earning CAGR of 24% driven by waste-to-energy We expect CEI’s earnings to grow at a CAGR of 24% in FY15-18E, primarily driven by revenue growth from the waste-to-energy segment, which accounts for 75% of top-line growth in the next three years. As of December 2015, CEI has a total contract waste-to-energy capacity of 38kt/d,

including 18.6kt/d in operation, 9.3kt/d under construction and 10.1kt/d in preparation. We forecast that its entire current project pipeline would be executed before year-end 2018E, implying operating capacity growth at a 31% CAGR in 2016E-18E. As a result, we forecast CEI’s market share would expand from 8% in 2015 to 12% in 2018, outgrowing the overall market and maintaining its market leader position.

Exhibit 34: CEI’s strong earnings growth…

Exhibit 35: …to be primarily driven by waste-to-energy

Source: Bloomberg, Company data, Goldman Sachs Global Investment Research.

Source: Goldman Sachs Global Investment Research.

Exhibit 36: Growing operating WtE capacity and market share

Exhibit 37: CEI’s total contract WtE capacity is 2X operating capacity as of Dec 2015

Source: Company Data, China's Urban and Rural Construction Statistics Yearbook, MOHURD, Ministry of Environmental Protection, Ernst & Young, Goldman Sachs Global Investment Research,

Source: Company data

Funding has always been a market concern for BOT project companies due to the nature of heavy upfront investment and long cash payback period.

We have conducted a detailed analysis on CEI’s funding record and conclude that 81% of CEI’s

capex for waste-to-energy projects in its current pipeline could be funded by its cash in hand and cash to be received from operations (2016E-18E) less interest expense payments (see Exhibit 37). Thus, we forecast the company’s net gearing to increase from 2016 and to peak in 2017 at 68%, which is still a healthy level compared to the H-share peer average of 74%.

372616

8011,123

1,325

1,703

2,085

2,855

3,505

4,004

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2009 2010 2011 2012 2013 2014 2015 2016E2017E2018E

Net income BBG consensusRmb mn

24% earningsCAGR in FY15-18E

23% earningsCAGR in FY12-15

Waste-to-energy,

75%

Wastewater

, 14%

Greentech,

10%

FY16-18E revenue growth breakdown

6.2% 6.4%

7.7%8.3%

9.4%

10.8%11.5%

0%

2%

4%

6%

8%

10%

12%

14%

-

10,000

20,000

30,000

40,000

50,000

2012 2013 2014 2015 2016E 2017E 2018E

t/d WtE capacity in operation

CEI's market share (RHS)

0

10,000

20,000

30,000

40,000

50,000

In operation Under

construction

In

preparation

Total contract

capacity

Further

expansion

t/d

2016 年 5 月 31 日中国：环保


Exhibit 38: How is capex funded? We expect internal cash could support 81% of capex

Source: Company data, Goldman Sachs Global Investment Research.

Driver #2: Parentco support to accelerate national expansion We expect CEI to continue to benefit from the support of its parentco, China Everbright Group, a mega SOE under the State Council covering a wide range of businesses such as banks, brokerage, insurance, asset management, trust, investment banking, and investment funds. The parentco has signed strategic cooperation agreements with multiple local governments in China (see Exhibit 39), and most of them specifically mentioned that they are seeking future cooperation in the environmental area. CEI, as the flagship subsidiary of Everbright Group’s environmental

business franchise, should be able to capitalize on the group’s strategic focus on the environmental industry and relationships with local governments.

Furthermore, CEI has the lowest financing cost among all A/H peers, with FY15 financing cost at 3.6%, providing a strong edge over its competitors as fierce market competition has bid down the project return to low-teen levels.

Exhibit 39: Parentco’s strategic cooperation with local governments

Exhibit 40: CEI’s financing cost is the lowest among all A/H peers

Source: China Everbright Group website.

Source: Company data, Wind.

10,866

4,9285,164

5,702

3,774

5,433 1,549

8,812

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Under

construction

In preparation Total contract

capacity

Further

expansion

Cash in hand

(2015)

Cash received

from

operations

(16-18E)

Interest

expense

Total source of

cash

Rmb mn

Use of funds Source of funds

Time Province / city Areas of cooperation

Apr-16 ShaanxiFinance, tech, manufacturing, environmental

protection, modern agriculture

Mar-15 Heilongjiang NA

Nov-14 Jiangxifinancial service, environmental protection,

energy conservation, etc.

Oct-13 Beijinginfrastructure construction, environmental

industry development, etc.

Oct-12 Shenzhen

finance, investment, municipal infrastructure

construction, environmental protection, new

energy, low carbon economy development etc.

Mar-12 Fujian NA

May-10 Shandong NA

3.6%

4.5%

5.1%

5.9%

6.2%

6.3%

7.2%

7.2%

7.4%

9.5%

10.7%

0% 2% 4% 6% 8% 10% 12%

CEI

Welle

Capital Env

Western Power

TUS-Sound

Dongjiang

Tianying

GrandBlue

Dynagreen Env

Canvest Env

Shengyun

FY15 Financing Cost

2016 年 5 月 31 日中国：环保


China Everbright International Ltd.: Summary financials

Profit model (HK$ mn) 12/15 12/16E 12/17E 12/18E Balance sheet (HK$ mn) 12/15 12/16E 12/17E 12/18E

Total revenue 8,534.5 11,674.3 13,978.7 15,222.4 Cash & equivalents 6,118.1 3,342.7 2,347.3 1,930.0

Cost of goods sold (4,625.7) (6,458.8) (7,602.3) (7,983.8) Accounts receivable 3,060.4 4,186.3 4,313.7 4,697.5

SG&A (768.4) (1,051.1) (1,258.6) (1,370.5) Inventory 202.3 282.5 332.5 349.2

R&D -- -- -- -- Other current assets 2,107.1 2,766.6 3,452.9 4,075.6

Other operating profit/(expense) 384.1 592.6 708.0 762.7 Total current assets 11,488.0 10,578.2 10,446.5 11,052.4

EBITDA 3,708.4 5,018.3 6,149.1 7,023.7 Net PP&E 2,501.3 3,209.5 3,981.6 4,656.4

Depreciation & amortization (183.9) (261.4) (323.2) (393.0) Net intangibles 4,419.1 5,112.5 6,119.9 7,099.5

EBIT 3,524.5 4,756.9 5,825.9 6,630.7 Total investments 614.6 608.5 602.5 596.4

Interest income 52.0 44.6 26.8 20.1 Other long-term assets 21,600.1 28,576.9 35,667.0 39,408.6

Interest expense (451.8) (524.9) (602.9) (665.3) Total assets 40,623.1 48,085.6 56,817.4 62,813.3

Income/(loss) from uncons. subs. 0.1 0.0 0.0 0.0

Others (6.0) (6.0) (6.0) (6.0) Accounts payable 2,794.5 3,901.9 4,592.7 4,424.0

Pretax profits 3,118.8 4,270.6 5,243.7 5,979.6 Short-term debt 3,409.6 4,409.6 6,409.6 7,409.6

Income tax (783.3) (1,072.6) (1,317.0) (1,494.9) Other current liabilities 119.3 166.6 196.1 205.9

Minorities (250.6) (343.2) (421.4) (480.5) Total current liabilities 6,323.3 8,478.0 11,198.3 12,039.4

Long-term debt 12,411.1 13,411.1 14,411.1 14,411.1

Net income pre-preferred dividends 2,084.9 2,854.8 3,505.3 4,004.1 Other long-term liabilities 2,468.1 3,510.8 4,208.4 4,499.4

Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 14,879.2 16,921.9 18,619.5 18,910.5

Net income (pre-exceptionals) 2,084.9 2,854.8 3,505.3 4,004.1 Total liabilities 21,202.5 25,399.9 29,817.7 30,949.9

Post-tax exceptionals 0.0 0.0 0.0 0.0

Net income 2,084.9 2,854.8 3,505.3 4,004.1 Preferred shares 0.0 0.0 0.0 0.0

Total common equity 17,196.2 19,221.5 22,013.1 25,140.9

EPS (basic, pre-except) (HK$) 0.46 0.64 0.78 0.89 Minority interest 2,224.4 3,464.2 4,986.5 6,722.5

EPS (basic, post-except) (HK$) 0.46 0.64 0.78 0.89

EPS (diluted, post-except) (HK$) 0.46 0.64 0.78 0.89 Total liabilities & equity 40,623.1 48,085.6 56,817.4 62,813.3

DPS (HK$) 0.18 0.16 0.20 0.22

Dividend payout ratio (%) 39.8 25.0 25.0 25.0 BVPS (HK$) 3.84 4.29 4.91 5.61

Free cash flow yield (%) (4.7) (9.9) (7.6) (1.4)

Growth & margins (%) 12/15 12/16E 12/17E 12/18E Ratios 12/15 12/16E 12/17E 12/18E

Sales growth 34.3 36.8 19.7 8.9 CROCI (%) 36.1 33.3 34.1 32.7

EBITDA growth 35.7 35.3 22.5 14.2 ROE (%) 12.5 15.7 17.0 17.0

EBIT growth 34.6 35.0 22.5 13.8 ROA (%) 5.8 6.4 6.7 6.7

Net income growth 22.4 36.9 22.8 14.2 ROACE (%) 10.3 10.7 10.5 10.2

EPS growth 22.4 36.9 22.8 14.2 Inventory days 12.6 13.7 14.8 15.6

Gross margin 45.8 44.7 45.6 47.6 Receivables days 107.6 113.3 111.0 108.0

EBITDA margin 43.5 43.0 44.0 46.1 Payable days 201.1 189.2 203.9 206.1

EBIT margin 41.3 40.7 41.7 43.6 Net debt/equity (%) 50.0 63.8 68.4 62.4

Interest cover - EBIT (X) 8.8 9.9 10.1 10.3

Cash flow statement (HK$ mn) 12/15 12/16E 12/17E 12/18E Valuation 12/15 12/16E 12/17E 12/18E

Net income pre-preferred dividends 2,084.9 2,854.8 3,505.3 4,004.1

D&A add-back 183.9 261.4 323.2 393.0 P/E (analyst) (X) 26.2 13.1 10.6 9.3

Minorities interests add-back 250.6 343.2 421.4 480.5 P/B (X) 3.2 1.9 1.7 1.5

Net (inc)/dec working capital (4,787.8) (6,597.8) (6,506.5) (4,622.7) EV/EBITDA (X) 18.0 11.0 9.9 9.1

Other operating cash flow 278.1 (41.2) (23.4) (3.8) EV/GCI (X) 6.6 4.4 4.1 3.6

Cash flow from operations (1,990.2) (3,179.6) (2,280.0) 251.1 Dividend yield (%) 1.5 1.9 2.4 2.7

Capital expenditures (660.7) (845.4) (942.4) (874.0)

Acquisitions 0.0 0.0 0.0 0.0

Divestitures 4.7 0.0 0.0 0.0

Others (2,019.5) (817.5) (1,160.3) (1,173.4)

Cash flow from investments (2,675.6) (1,663.0) (2,102.7) (2,047.5)

Dividends paid (common & pref) (493.2) (829.5) (713.7) (876.3)

Inc/(dec) in debt 6,792.5 2,000.0 3,000.0 1,000.0

Common stock issuance (repurchase) 0.0 0.0 0.0 0.0

Other financing cash flows 225.9 896.6 1,100.9 1,255.4

Cash flow from financing 6,525.2 2,067.1 3,387.2 1,379.1

Total cash flow 1,859.4 (2,775.4) (995.4) (417.3) Note: Last actual year may include reported and estimated data.

Source: Company data, Goldman Sachs Research estimates.

2016 年 5 月 31 日中国：环保


Tianjin Capital (H): Weak growth outlook; downgrade to Neutral

What happened We cut 2016-20E earnings by 30% to 37% mainly to reflect a lower base for our forecast due to 18% below prior expectation FY15 net profit, specifically in 1) lower wastewater tariff assumptions on VAT refund policy change (full-year impact in FY16 vs. half year impact in FY15), 2) lower FY16 volume guidance from company (down 3% yoy) 3) higher cost assumption (which we

benchmark to FY15).

As a Tianjin-based SOE and one of the earliest entrants in the wastewater treatment (WWT) market (since 1984), it plays a dominant role in Tianjin. However, the company does not plan to expand its footprint to other areas and it lost the chance to capture the industry growth (no new water plants under construction). With the headwind of VAT policy change effective July 1,

2015, the company is required to pay 30% of the VAT (tax rate at 17%) vs. fully exempted previously. We examine the impact of this policy change and lowered our earnings forecasts based on lower tariff assumptions. It turns out to be a big hit to the bottom line as the company generates most of its revenue (73% in FY15) from operating wastewater plants with minimal construction revenue (not subject the VAT change).

The stock is currently trading at a 2017E P/E of 14x and P/B of 1.0x vs. historical average P/E of 13x and 1.0x since 2009, while its 2017E ROE of 7% is in line with its historical average of 8%. Furthermore, our new 12-month target price of HK$4.5 implies limited upside of 14% on a coverage relative basis. Hence, we view the risk-reward as balanced and downgrade the stock to Neutral from Buy.

Since we added the stock to the Buy list on July 13, 2015, the stock is down 21.2% vs. the Hang Sang Index down 27.5%. (May 31 close)

Current view Our 12-month target price of HK$4.5 (down from HK$6.6) is based on 2020E EPS and a target P/E of 19.5X (historical average P/E of global peers in 1991-2015 vs. 19.3X based on 1991-2014 average previously). We then discount back the 2020E fair value to 2016E using a cost of equity of 9.5%

(unchanged, same for all H-shares).

Risks

Higher/lower-than-expected water tariff adjustment, higher/lower-than-expected water volume growth. Faster/slower-than-expected receivable collection.

Impact on related securities

We maintain Sell on Tianjin Capital (A) with a 12-month P/E-based target price of Rmb4.3 (down from Rmb6.3), which we derive using the same

approach as detailed above (but with an unchanged 9.0% cost of equity we assume for A-shares). Our target price implies 43% downside.

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the investment

profile measures please refer to the

disclosure section of this document.

Tianjin Capital Environmental (H) (1065.HK)

Asia Pacific Industrials Peer Group Average

Key data Current

Price (HK$) 4.01

12 month price target (HK$) 4.50

600874.SS Price (Rmb) 7.41

600874.SS 12 month price target (Rmb) 4.30

Market cap (HK$ mn / US$ mn) 5,723.2 / 736.9

Foreign ownership (%) --

12/15 12/16E 12/17E 12/18E

EPS (Rmb) 0.23 0.24 0.24 0.25

EPS growth (%) 7.3 1.6 0.9 7.3

EPS (diluted) (Rmb) 0.23 0.24 0.24 0.25

EPS (basic pre-ex) (Rmb) 0.23 0.24 0.24 0.25

P/E (X) 20.6 14.4 14.3 13.3

P/B (X) 1.5 1.0 1.0 0.9

EV/EBITDA (X) 8.6 7.3 6.5 5.8

Dividend yield (%) 1.5 2.1 2.1 2.3

ROE (%) 7.7 7.4 7.1 7.3

CROCI (%) 11.7 12.8 10.0 9.9

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

May-15 Sep-15 Dec-15 Mar-16

Price performance chart

Tianjin Capital Environmental (H) (L) Hang Seng China Ent. Index (R)

Share price performance (%) 3 month 6 month 12 month

Absolute (18.7) (37.9) (48.8)

Rel. to Hang Seng China Ent. Index (25.3) (29.5) (16.3)

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/30/2016 close.

2016 年 5 月 31 日中国：环保


Tianjin Capital Environmental (H): Summary financials

Profit model (Rmb mn) 12/15 12/16E 12/17E 12/18E Balance sheet (Rmb mn) 12/15 12/16E 12/17E 12/18E



SG&A (108.5) (104.9) (98.1) (101.0) Inventory 27.2 27.7 28.6 29.6

R&D -- -- -- -- Other current assets 47.2 45.6 46.8 48.2

Other operating profit/(expense) (64.9) (60.9) (61.3) (61.9) Total current assets 2,877.9 3,189.5 3,447.5 3,354.3

EBITDA 921.0 854.7 903.7 913.0 Net PP&E 454.5 490.6 480.8 467.3


EBIT 558.9 478.6 495.1 504.0 Total investments 129.3 129.3 129.3 129.3

Interest income 26.9 29.3 36.0 38.7 Other long-term assets 327.5 316.5 325.1 334.7


Income/(loss) from uncons. subs. (5.3) 0.0 0.0 0.0

Others 119.5 193.9 193.9 193.9 Accounts payable 1,583.9 1,347.0 1,265.1 1,309.7

Pretax profits 490.2 512.2 516.6 554.2 Short-term debt 1,003.8 1,003.8 1,698.7 1,003.8

Income tax (145.7) (150.6) (151.9) (163.0) Other current liabilities 3.8 3.9 4.0 4.2


Long-term debt 1,269.1 1,769.1 1,074.2 1,074.2

Net income pre-preferred dividends 330.5 336.0 338.9 363.6 Other long-term liabilities 1,569.9 1,824.6 1,885.0 1,951.5


Net income (pre-exceptionals) 330.5 336.0 338.9 363.6 Total liabilities 5,430.5 5,948.4 5,927.1 5,343.3


Net income 330.5 336.0 338.9 363.6 Preferred shares 0.0 0.0 0.0 0.0


EPS (basic, pre-except) (Rmb) 0.23 0.24 0.24 0.25 Minority interest 217.6 243.2 269.1 296.8

EPS (basic, post-except) (Rmb) 0.23 0.24 0.24 0.25

EPS (diluted, post-except) (Rmb) 0.23 0.24 0.24 0.25 Total liabilities & equity 10,049.3 10,828.8 11,070.7 10,775.8

DPS (Rmb) 0.07 0.07 0.07 0.08

Dividend payout ratio (%) 30.2 30.2 30.2 30.2 BVPS (Rmb) 3.08 3.25 3.42 3.60

Free cash flow yield (%) 26.3 (2.5) 10.0 12.9


Sales growth 5.8 (3.4) 2.7 3.0 CROCI (%) 11.7 12.8 10.0 9.9

EBITDA growth 1.1 (7.2) 5.7 1.0 ROE (%) 7.7 7.4 7.1 7.3

EBIT growth (6.8) (14.4) 3.4 1.8 ROA (%) 3.2 3.2 3.1 3.3







Cash flow statement (Rmb mn) 12/15 12/16E 12/17E 12/18E Valuation 12/15 12/16E 12/17E 12/18E

Net income pre-preferred dividends 330.5 336.0 338.9 363.6



Net (inc)/dec working capital 1,428.7 (278.8) 68.7 3.9 EV/EBITDA (X) 8.6 7.3 6.5 5.8

Other operating cash flow 175.4 267.3 50.6 55.4 EV/GCI (X) 1.0 0.7 0.6 0.5

Cash flow from operations 2,310.7 726.2 892.6 859.6 Dividend yield (%) 1.5 2.1 2.1 2.3




Others (24.3) 0.0 0.0 0.0

Cash flow from investments (492.9) (855.0) (383.9) (197.7)


Inc/(dec) in debt (1,042.5) 500.0 0.0 (694.9)


Other financing cash flows (161.7) 0.0 0.0 0.0

Cash flow from financing (1,304.1) 400.1 (101.6) (797.4)

Total cash flow 513.7 271.3 407.1 (135.4) Note: Last actual year may include reported and estimated data.


2016 年 5 月 31 日中国：环保


Beijing Originwater Technology: Summary financials




SG&A (414.6) (668.2) (887.6) (1,104.6) Inventory 345.9 706.8 1,100.9 1,483.9



EBITDA 1,580.3 2,381.5 3,515.5 4,682.2 Net PP&E 429.8 1,978.6 3,319.2 4,072.6


EBIT 1,517.3 2,230.0 3,226.0 4,281.3 Total investments 2,358.2 2,358.2 2,358.2 2,358.2





Pretax profits 1,695.1 2,455.4 3,382.0 4,439.4 Short-term debt 211.2 3,145.4 5,145.4 6,145.4



Long-term debt 934.2 2,000.0 4,000.0 5,000.0

Net income pre-preferred dividends 1,361.7 2,073.2 2,859.2 3,754.2 Other long-term liabilities 75.1 126.4 196.9 265.4









DPS (Rmb) 0.10 0.06 0.08 0.11






EBIT growth 60.6 47.0 44.7 32.7 ROA (%) 9.4 9.2 8.7 8.3


EPS growth 26.8 (39.7) 37.9 31.3 Inventory days 37.0 37.2 41.1 43.5



EBIT margin 29.1 26.5 25.3 25.0 Net debt/equity (%) (29.4) 6.1 32.7 31.2






Net (inc)/dec working capital (125.8) (1,718.0) (3,087.4) (1,398.7) EV/EBITDA (X) 12.2 19.8 14.9 11.4

Other operating cash flow (35.3) (298.9) (433.7) (586.8) EV/GCI (X) 2.5 3.4 2.6 2.2

Cash flow from operations 1,359.2 246.5 (319.3) 2,239.4 Dividend yield (%) 0.5 0.4 0.6 0.7

Capital expenditures (3,258.5) (5,461.6) (5,107.0) (3,424.1)

Acquisitions 0.0 (110.0) 0.0 0.0


Others (497.6) 319.6 462.3 613.6



Inc/(dec) in debt (780.6) 4,000.0 4,000.0 2,000.0

Common stock issuance (repurchase) 6,342.6 0.0 0.0 0.0



Total cash flow 2,924.0 (1,128.4) (1,151.1) 1,170.7 Note: Last actual year may include reported and estimated data.


2016 年 5 月 31 日中国：环保


TUS-Sound: Summary financials


Total revenue 6,340.6 10,704.8 14,642.3 18,510.3 Cash & equivalents 2,539.4 2,176.7 1,494.8 803.5


SG&A (542.7) (916.3) (1,106.9) (1,306.7) Inventory 430.7 771.2 1,064.9 1,358.9

R&D (184.7) (311.9) (426.6) (539.3) Other current assets 30.2 30.2 30.2 30.2


EBITDA 1,321.0 1,729.2 2,388.9 2,989.0 Net PP&E 7,200.9 10,928.3 16,117.4 20,104.7


EBIT 1,121.7 1,455.2 2,013.6 2,498.9 Total investments 140.5 186.3 198.5 211.5








Long-term debt 2,074.3 4,074.3 7,074.3 10,074.3

Net income pre-preferred dividends 930.5 1,239.5 1,693.1 2,053.9 Other long-term liabilities 169.2 364.2 567.8 794.1


Net income (pre-exceptionals) 930.5 1,239.5 1,693.1 2,053.9 Total liabilities 9,565.0 19,463.0 31,940.7 39,285.6


Net income 930.5 1,239.5 1,693.1 2,053.9 Preferred shares 0.0 0.0 0.0 0.0





DPS (Rmb) 0.15 0.20 0.27 0.33






EBIT growth 14.6 29.7 38.4 24.1 ROA (%) 7.3 5.8 5.0 4.5








Net income pre-preferred dividends 930.5 1,239.5 1,693.1 2,053.9



Net (inc)/dec working capital (1,227.5) (484.5) (1,267.4) (414.4) EV/EBITDA (X) 26.5 19.2 16.7 14.6


Cash flow from operations 179.1 1,217.8 999.6 2,351.8 Dividend yield (%) 0.4 0.7 0.9 1.1

Capital expenditures (1,255.9) (5,352.4) (7,321.2) (5,553.1)



Others (405.3) (100.4) (190.1) (257.5)



Inc/(dec) in debt 3,262.7 4,000.0 6,000.0 3,000.0




Total cash flow 1,436.6 (362.7) (681.9) (691.3) Note: Last actual year may include reported and estimated data.


2016 年 5 月 31 日中国：环保


GrandBlue Environment Co.: Summary financials



Cost of goods sold (2,300.0) (2,604.3) (3,031.4) (3,348.9) Accounts receivable 334.6 373.5 434.4 487.6

SG&A (292.7) (308.0) (336.5) (377.7) Inventory 138.6 157.0 182.7 201.8



EBITDA 1,234.9 1,395.8 1,592.0 1,831.5 Net PP&E 4,730.9 5,710.6 6,967.7 8,355.4


EBIT 738.7 806.9 958.7 1,128.2 Total investments 39.5 39.5 39.5 39.5




Others 77.8 114.0 108.6 130.6 Accounts payable 567.2 642.2 747.5 825.8

Pretax profits 575.5 730.0 879.1 1,024.0 Short-term debt 1,326.4 1,326.4 1,326.4 1,326.4

Income tax (129.9) (165.0) (199.0) (232.0) Other current liabilities 1,327.3 1,327.3 1,327.3 1,327.3


Long-term debt 3,157.5 3,157.5 3,657.5 4,657.5

Net income pre-preferred dividends 402.9 526.7 636.4 743.1 Other long-term liabilities 1,067.1 1,167.9 1,285.1 1,436.1









DPS (Rmb) 0.10 0.21 0.25 0.29


Free cash flow yield (%) 6.5 (6.4) (3.1) (3.2)




EBIT growth 34.5 9.2 18.8 17.7 ROA (%) 3.5 4.1 4.7 4.9











Net (inc)/dec working capital 51.9 17.8 18.6 6.0 EV/EBITDA (X) 12.9 9.2 8.4 7.6


Cash flow from operations 1,262.7 1,267.3 1,444.0 1,647.1 Dividend yield (%) 0.6 1.8 2.1 2.5

Capital expenditures (427.2) (1,873.5) (1,743.5) (1,956.9)



Others (1,256.3) 435.2 5.2 5.2



Inc/(dec) in debt 434.7 0.0 500.0 1,000.0



Cash flow from financing 945.9 (76.6) 342.0 809.1

Total cash flow 526.4 (247.7) 47.7 504.5 Note: Last actual year may include reported and estimated data.


2016 年 5 月 31 日中国：环保


Tianjin Motimo Membrane Tech: Summary financials


Total revenue 604.6 844.9 1,109.5 1,359.1 Cash & equivalents 558.3 486.9 448.2 266.3

Cost of goods sold (412.7) (581.1) (769.1) (946.1) Accounts receivable 535.1 810.2 1,215.9 1,861.8

SG&A (132.0) (176.0) (220.0) (255.8) Inventory 288.4 406.1 632.1 777.6



EBITDA 60.8 95.8 124.8 152.1 Net PP&E 209.9 345.8 473.8 570.1

Depreciation & amortization (16.0) (29.7) (36.0) (40.7) Net intangibles 401.8 405.1 407.6 406.5

EBIT 44.9 66.0 88.8 111.4 Total investments 106.8 111.2 118.3 134.4




Others 25.4 37.4 50.3 63.1 Accounts payable 264.2 398.0 632.1 1,036.8

Pretax profits 57.2 79.5 97.3 120.7 Short-term debt 380.1 430.1 630.1 630.1


Minorities (0.4) (0.6) 0.1 0.2 Total current liabilities 794.3 978.1 1,412.2 1,816.9

Long-term debt 0.0 200.0 400.0 600.0

Net income pre-preferred dividends 52.9 72.2 88.4 107.8 Other long-term liabilities 12.1 26.1 41.8 59.6

Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 12.1 226.1 441.8 659.6

Net income (pre-exceptionals) 52.9 72.2 88.4 107.8 Total liabilities 806.4 1,204.2 1,854.0 2,476.5







DPS (Rmb) 0.02 0.03 0.03 0.04




Sales growth 15.3 39.7 31.3 22.5 CROCI (%) (4.1) 9.7 9.2 8.5

EBITDA growth (42.2) 57.4 30.3 21.9 ROE (%) 4.9 5.5 6.4 7.3

EBIT growth (50.9) 47.2 34.5 25.4 ROA (%) 3.1 3.1 3.0 2.9

Net income growth (38.1) 36.5 22.4 21.9 ROACE (%) 7.1 7.4 7.4 7.4

EPS growth (41.5) 36.5 22.4 21.9 Inventory days 304.1 218.1 246.4 271.9



EBIT margin 7.4 7.8 8.0 8.2 Net debt/equity (%) (13.6) 10.4 39.9 61.9





Minorities interests add-back 0.4 0.6 (0.1) (0.2) P/B (X) 5.9 3.7 3.5 3.3

Net (inc)/dec working capital (122.4) (259.0) (397.6) (386.7) EV/EBITDA (X) 121.4 53.8 44.8 39.3

Other operating cash flow (127.9) 9.6 8.6 1.6 EV/GCI (X) 6.1 3.1 2.5 2.2

Cash flow from operations (181.1) (146.9) (264.8) (236.7) Dividend yield (%) 0.1 0.2 0.2 0.2




Others (59.6) 0.0 0.0 0.0

Cash flow from investments (203.1) (169.0) (166.4) (135.9)


Inc/(dec) in debt 388.2 250.0 400.0 200.0



Cash flow from financing 744.1 244.5 392.5 190.8

Total cash flow 360.0 (71.4) (38.8) (181.9) Note: Last actual year may include reported and estimated data.


2016 年 5 月 31 日中国：环保


Beijing Water Business Doctor: Summary financials



Cost of goods sold (1,414.5) (1,852.8) (2,851.8) (3,982.6) Accounts receivable 919.7 2,186.6 5,662.2 9,612.6

SG&A (148.3) (200.2) (311.0) (440.0) Inventory 911.9 1,776.7 2,343.9 3,273.3



EBITDA 419.8 611.5 907.3 1,229.5 Net PP&E 686.8 1,029.1 1,562.3 2,042.5

Depreciation & amortization (57.6) (88.4) (136.3) (181.8) Net intangibles 689.7 1,057.2 1,627.7 2,135.2





Others 5.3 7.6 11.2 15.2 Accounts payable 906.1 2,030.5 3,906.6 6,546.7

Pretax profits 337.1 493.0 702.6 879.4 Short-term debt 245.0 245.0 2,245.0 3,245.0


Minorities 0.0 0.0 0.0 0.0 Total current liabilities 1,151.1 2,275.5 6,151.6 9,791.7

Long-term debt 1,750.0 750.0 1,750.0 2,750.0


Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 1,813.1 847.8 1,905.7 2,976.8








DPS (Rmb) 0.02 0.02 0.03 0.04






EBIT growth 77.7 44.4 47.4 35.9 ROA (%) 6.0 5.7 5.2 4.4





EBIT margin 18.4 19.7 18.7 17.9 Net debt/equity (%) 22.5 (7.8) 34.2 64.9






Net (inc)/dec working capital (420.2) (1,007.2) (2,166.8) (2,239.7) EV/EBITDA (X) 45.7 23.6 18.8 15.9


Cash flow from operations 31.2 (399.2) (1,368.2) (1,230.2) Dividend yield (%) 0.1 0.1 0.2 0.2

Capital expenditures (556.3) (798.1) (1,240.0) (1,169.5)



Others (918.2) 0.0 0.0 0.0

Cash flow from investments (1,474.4) (798.1) (1,240.0) (1,169.5)


Inc/(dec) in debt 1,766.5 (1,000.0) 3,000.0 2,000.0

Common stock issuance (repurchase) 0.0 2,339.5 0.0 0.0



Total cash flow 223.4 129.1 372.8 (426.7) Note: Last actual year may include reported and estimated data.


2016 年 5 月 31 日中国：环保


Dongjiang Environmental Co. (H): Summary financials


Total revenue 2,403.0 3,225.1 4,685.1 5,575.9 Cash & equivalents 859.3 882.1 722.7 795.5

Cost of goods sold (1,624.3) (2,133.4) (3,117.1) (3,702.9) Accounts receivable 938.0 1,420.2 2,297.3 3,012.9

SG&A (351.8) (472.2) (685.9) (816.3) Inventory 269.3 353.7 516.7 613.9



EBITDA 606.1 930.8 1,256.5 1,471.1 Net PP&E 2,221.0 2,616.5 3,118.4 3,459.5



Interest income 19.5 18.0 16.6 15.7 Other long-term assets 524.9 704.4 1,023.3 1,217.9



Others 87.4 124.2 181.3 237.5 Accounts payable 947.5 1,351.1 2,130.0 2,715.5

Pretax profits 449.4 652.4 922.9 1,101.1 Short-term debt 1,629.3 2,029.3 2,529.3 2,729.3



Long-term debt 735.0 1,135.0 1,535.0 1,835.0


Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 872.9 1,316.1 1,799.7 2,149.4








DPS (Rmb) 0.08 0.12 0.16 0.20






EBIT growth 36.2 46.9 43.2 20.1 ROA (%) 5.7 6.4 7.0 6.8











Net (inc)/dec working capital (426.0) (152.9) (242.0) (215.7) EV/EBITDA (X) 18.8 12.9 10.5 9.4

Other operating cash flow 59.3 (258.7) (430.4) (275.2) EV/GCI (X) 2.0 1.7 1.4 1.3

Cash flow from operations 227.8 493.4 535.4 918.0 Dividend yield (%) 0.7 1.1 1.5 1.8

Capital expenditures (475.9) (1,128.8) (1,405.5) (1,115.2)



Others (440.0) (72.2) (88.7) (88.2)

Cash flow from investments (915.6) (1,201.0) (1,494.2) (1,203.4)


Inc/(dec) in debt 714.1 800.0 900.0 500.0



Cash flow from financing 479.5 730.4 799.5 358.2

Total cash flow (208.3) 22.8 (159.3) 72.7 Note: Last actual year may include reported and estimated data.


2016 年 5 月 31 日中国：环保


Beijing Enterprises Water Group: Summary financials

Profit model (HK$ mn) 12/15 12/16E 12/17E 12/18E Balance sheet (HK$ mn) 12/15 12/16E 12/17E 12/18E



SG&A (1,225.7) (1,635.9) (1,796.1) (1,930.6) Inventory 99.1 134.7 149.5 158.7

R&D -- -- -- -- Other current assets 6,646.9 8,922.6 11,033.0 12,281.5


EBITDA 3,699.8 4,680.2 5,472.1 6,093.3 Net PP&E 1,379.8 1,802.9 2,265.8 2,748.0


EBIT 3,493.1 4,448.3 5,182.4 5,743.2 Total investments 4,619.8 5,539.4 5,893.1 6,273.0


Interest expense (1,146.7) (1,429.9) (1,724.9) (2,019.9) Total assets 64,491.7 77,852.3 91,569.1 102,999.3


Others 871.1 950.4 1,119.7 1,274.6 Accounts payable 11,158.0 15,170.9 17,096.8 18,420.7


Income tax (777.8) (958.7) (1,104.9) (1,213.3) Other current liabilities 0.0 0.0 0.0 0.0


Long-term debt 24,317.8 30,317.8 38,317.8 44,317.8

Net income pre-preferred dividends 2,455.4 3,023.8 3,483.5 3,824.0 Other long-term liabilities 2,110.7 2,110.7 2,110.7 2,110.7






EPS (basic, pre-except) (HK$) 0.28 0.35 0.40 0.44 Minority interest 4,106.6 5,257.9 6,584.4 8,040.7

EPS (basic, post-except) (HK$) 0.28 0.35 0.40 0.44

EPS (diluted, post-except) (HK$) 0.28 0.35 0.40 0.44 Total liabilities & equity 64,491.7 77,852.3 91,569.1 102,999.3

DPS (HK$) 0.09 0.12 0.13 0.15

Dividend payout ratio (%) 33.7 33.7 33.7 33.7 BVPS (HK$) 1.86 2.11 2.39 2.69



Sales growth 51.3 33.5 12.3 7.5 CROCI (%) (38.3) 40.0 41.1 41.6


EBIT growth 44.4 27.3 16.5 10.8 ROA (%) 4.2 4.2 4.1 3.9







Cash flow statement (HK$ mn) 12/15 12/16E 12/17E 12/18E Valuation 12/15 12/16E 12/17E 12/18E




Net (inc)/dec working capital 704.6 (7,874.1) (8,687.1) (7,439.3) EV/EBITDA (X) 21.3 17.0 15.9 15.3

Other operating cash flow (7,198.7) (219.5) (253.7) (279.9) EV/GCI (X) 8.0 7.0 6.8 6.7

Cash flow from operations (3,519.7) (4,453.0) (4,724.3) (3,058.3) Dividend yield (%) 1.7 2.4 2.7 3.0


Acquisitions (978.7) 0.0 0.0 0.0


Others (2,392.0) (1,446.2) (883.5) (907.0)


Dividends paid (common & pref) (679.1) (827.5) (1,019.1) (1,174.0)

Inc/(dec) in debt 8,291.1 6,000.0 8,000.0 6,000.0


Other financing cash flows 38.2 766.5 883.1 969.5


Total cash flow 375.8 (472.6) 1,680.9 1,211.8 Note: Last actual year may include reported and estimated data.


2016 年 5 月 31 日中国：环保


信息披露附录申明我们，朱地武、王玮嘉，在此申明，本报告所表述的所有观点准确反映了我们对上述公司或其证券的个人看法。此外，我们的薪金的任何部分不曾与，不与，

也将不会与本报告中的具体推荐意见或观点直接或间接相关。

投资摘要投资摘要部分通过将一只股票的主要指标与其行业和市场相比较来评价该股的投资环境。所描述的四个主要指标包括增长、回报、估值倍数和波动性。增长、

回报和估值倍数都是运用数种方法综合计算而成，以确定该股在地区研究行业内所处的百分位排名。

每项指标的准确计算方式可能随着财务年度、行业和所属地区的不同而有所变化，但标准方法如下：

增长是下一年预测与当前年度预测的综合比较，如每股盈利、EBITDA 和收入等。回报是各项资本回报指标一年预测的加总，如 CROCI、平均运用资本回报率

和净资产回报率。估值倍数根据一年预期估值比率综合计算，如市盈率、股息收益率、EV/FCF、EV/EBITDA、EV/DACF、市净率。波动性根据 12个月的历史

波动性计算并经股息调整。

Quantum Quantum 是提供具体财务报表数据历史、预测和比率的高盛专有数据库，它可以用于对单一公司的深入分析，或在不同行业和市场的公司之间进行比较。

GS SUSTAIN GS SUSTAIN是侧重于长期做多建议的相对稳定的全球投资策略。GS SUSTAIN关注名单涵盖了我们认为相对于全球同业具有持续竞争优势和出色的资本回

报、因而有望在长期内表现出色的行业领军企业。我们对领军企业的筛选基于对以下三方面的量化分析：现金投资的现金回报、行业地位和管理水平（公司管

理层对行业面临的环境、社会和企业治理方面管理的有效性）。

信息披露

相关的股票研究范围

朱地武：亚洲商品企业。

亚洲商品企业：ACC、中国铝业(A)、中国铝业(H)、Ambuja Cements、鞍钢(A)、鞍钢(H)、海螺水泥(A)、海螺水泥(H)、宝钢、金隅股份(A)、金隅股份(H)、北

控水务、碧水源、万邦达、中煤能源、中煤能源(H)、海螺创业、光大国际、中国宏桥、洛阳钼业、中国建材、华润水泥、山水水泥、中国神华(A)、中国神华

(H)、Coal India Ltd.、东江环保(A)、东江环保(H)、东鹏控股、瀚蓝环境、Grasim Industries、Hindalco Industries、江西铜业(A)、江西铜业(H)、Korea Zinc、马钢(A)、马钢(H)、National Aluminium Co.、Shree Cement Ltd.、天津创业环保(A)、天津创业环保(H)、津膜科技、启迪桑德、Ultratech Cement、Vedanta Ltd.、兖州煤业(A)、兖州煤业(H)、招金矿业、紫金矿业(A)、紫金矿业(H)。

与公司有关的法定披露

以下信息披露了高盛高华证券有限责任公司（“高盛高华”）与北京高华证券有限责任公司（“高华证券”）投资研究部所研究的并在本研究报告中提及的公司之间

的关系。

高盛高华在今后 3个月中预计将从下述公司获得或寻求获得投资银行服务报酬：碧水源 (Rmb15.40)、光大国际 (HK$8.33)

高盛高华在过去 12个月中与下述公司存在投资银行客户关系：光大国际 (HK$8.33)

没有对下述公司的具体信息披露：北控水务 (HK$4.99)、万邦达 (Rmb17.81)、东江环保(A) (Rmb17.41)、东江环保(H) (HK$12.68)、瀚蓝环境 (Rmb12.31)、天

津创业环保(A) (Rmb7.70)、天津创业环保(H) (HK$4.10)、津膜科技 (Rmb18.05)、启迪桑德 (Rmb30.14)

公司评级、研究行业及评级和相关定义

买入、中性、卖出：分析师建议将评为买入或卖出的股票纳入地区投资名单。一只股票在投资名单中评为买入或卖出由其相对于所属研究行业的潜在回报决定。

任何未获得买入或卖出评级的股票均被视为中性评级。每个地区投资评估委员会根据 25-35%的股票评级为买入、10-15%的股票评级为卖出的全球指导原则来

管理该地区的投资名单；但是，在某一特定行业买入和卖出评级的分布可能根据地区投资评估委员会的决定而有所不同。地区强力买入或卖出名单是以潜在回

报规模或实现回报的可能性为主要依据的投资建议。

潜在回报：代表当前股价与一定时间范围内预测目标价格之差。分析师被要求对研究范围内的所有股票给出目标价格。潜在回报、目标价格及相关时间范围在

每份加入投资名单或重申维持在投资名单的研究报告中都有注明。

研究行业及评级：分析师给出下列评级中的其中一项代表其根据行业历史基本面及／或估值对研究对象的投资前景的看法。具吸引力(A)：未来 12个月内投资前

景优于研究范围的历史基本面及／或估值。中性(N)：未来 12个月内投资前景相对研究范围的历史基本面及／或估值持平。谨慎(C)：未来 12个月内投资前景

劣于研究范围的历史基本面及／或估值。

暂无评级(NR)：在高盛高华于涉及该公司的一项合并交易或战略性交易中担任咨询顾问时并在某些其他情况下，投资评级和目标价格已经根据高华证券的政策予

以除去。暂停评级(RS)：由于缺乏足够的基础去确定投资评级或价格目标，或在发表报告方面存在法律、监管或政策的限制，我们已经暂停对这种股票给予投

资评级和价格目标。此前对这种股票作出的投资评级和价格目标(如有的话)将不再有效，因此投资者不应依赖该等资料。暂停研究(CS)：我们已经暂停对该公司

的研究。没有研究(NC)：我们没有对该公司进行研究。不存在或不适用(NA)：此资料不存在或不适用。无意义(NM)：此资料无意义，因此不包括在报告内。

一般披露

本报告在中国由高华证券分发。高华证券具备证券投资咨询业务资格。

本研究报告仅供我们的客户使用。除了与高盛相关的披露，本研究报告是基于我们认为可靠的目前已公开的信息，但我们不保证该信息的准确性和完整性，客

户也不应该依赖该信息是准确和完整的。报告中的信息、观点、估算和预测均截至报告的发表日，且可能在不事先通知的情况下进行调整。我们会适时地更新

我们的研究，但各种规定可能会阻止我们这样做。除了一些定期出版的行业报告之外，绝大多数报告是在分析师认为适当的时候不定期地出版。

2016 年 5 月 31 日中国：环保


高盛高华为高华证券的关联机构，从事投资银行业务。高华证券、高盛高华及它们的关联机构与本报告中涉及的大部分公司保持着投资银行业务和其它业务关

系。

我们的销售人员、交易员和其它专业人员可能会向我们的客户及自营交易部提供与本研究报告中的观点截然相反的口头或书面市场评论或交易策略。我们的资

产管理部门、自营交易部和投资业务部可能会做出与本报告的建议或表达的意见不一致的投资决策。

本报告中署名的分析师可能已经与包括高华证券销售人员和交易员在内的我们的客户讨论，或在本报告中讨论交易策略，其中提及可能会对本报告讨论的证券

市场价格产生短期影响的推动因素或事件，该影响在方向上可能与分析师发布的股票目标价格相反。任何此类交易策略都区别于且不影响分析师对于该股的基

本评级，此类评级反映了某只股票相对于报告中描述的研究范围内股票的回报潜力。

高华证券及其关联机构、高级职员、董事和雇员，不包括股票分析师和信贷分析师，将不时地对本研究报告所涉及的证券或衍生工具持有多头或空头头寸，担

任上述证券或衍生工具的交易对手，或买卖上述证券或衍生工具。

在高盛组织的会议上的第三方演讲嘉宾（包括高华证券或高盛其它部门人员）的观点不一定反映全球投资研究部的观点，也并非高华证券或高盛的正式观点。

在任何要约出售股票或征求购买股票要约的行为为非法的地区，本报告不构成该等出售要约或征求购买要约。本报告不构成个人投资建议，也没有考虑到个别

客户特殊的投资目标、财务状况或需求。客户应考虑本报告中的任何意见或建议是否符合其特定状况，以及(若有必要)寻求专家的意见，包括税务意见。本报告

中提及的投资价格和价值以及这些投资带来的收入可能会波动。过去的表现并不代表未来的表现，未来的回报也无法保证，投资者可能会损失本金。

某些交易，包括牵涉期货、期权和其它衍生工具的交易，有很大的风险，因此并不适合所有投资者。外汇汇率波动有可能对某些投资的价值或价格或来自这一

投资的收入产生不良影响。

投资者可以向高华销售代表取得或通过 http://www.theocc.com/about/publications/character-risks.jsp取得当前的期权披露文件。对于包含多重期权买卖的期权

策略结构产品，例如，期权差价结构产品，其交易成本可能较高。与交易相关的文件将根据要求提供。

所有研究报告均以电子出版物的形式刊登在高华客户网上并向所有客户同步提供。高华未授权任何第三方整合者转发其研究报告。有关某特定证券的研究报

告、模型或其它数据，请联络您的销售代表。

北京高华证券有限责任公司版权所有 © 2016 年

未经北京高华证券有限责任公司事先书面同意，本材料的任何部分均不得(i)以任何方式制作任何形式的拷贝、复印件或复制品，或(ii)再次分发。

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长期成长潜力向好，看好垃圾焚烧企业，买入光大国际（摘要）pg.jrj.com.cn/acc/Res/CN_RES/INDUS/2016/5/31/26cf0... · Prices in this report are as of the May