瑞信-中国环境部门关键问题回顾-china environment sector revisit the key concerns

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1、25July2017AsiaPacific/ChinaEquityResearchUtilitiesChinaEnvironmentSectorResearchAnalystsSECTORREVIEWDaveDai,CFA85221017358dave.dai@credit-suisse.comRevisitthekeyconcernsGaryZhou,CFA85221016648Figure1:Growth/policyriskexposureofvarioussub-sectorsgary.zhou@credit-suisse.comLowpolicy/executionrisk

2、sAlbertLiWTE85221016088albert.li@credit-suisse.comHWTLowerearningsgrowthWWTwithfundsWWTwithoutHigherearningsgrowthfundsHighpolicy/executionrisks*Largerbubblesizeimpliescheapervaluation(i.e.highershareupside).Source:CSresearch■Behindthederating.Theenvironmentsectorhasunderperformedmostutilitiesp

3、eersYTDonconcernsofpolicyuncertaintyforwasteandearningsqualityforwaterstocks.First,wearebullishonthegrowthpotentialofsolidwastetreatmentandcontrarytomarketconcerns,weexpectcurrenttariffs/subsidiestoremainintact.Andforwaste-watertreatment(WWT),weturnveryselectiveonqualityoperatorswithdisciplined

4、investmentstructureinthenewbulkpublic-privatepartnerships(PPP)format(replacingindividualtenders).ValuationisattractivewithoperationalP/Elowerthanhistoricalmean.■Waste:limitedtariffrisk.Waste-to-energy(WTE)capacitywilllikelydelivera20%capacityCAGRin2016-20withoutcompromiseonreturnwithabundanceof

5、high-returncoastalprojects.ClarityofWTEtariffcouldbeacatalyst,i.e.,notariffadjustmentinthe2H17renewabletariffreviews.Unlikewind/solar,WTErequirescoordinatedsupportbetweencentralandlocalgovernmentsandtherecentgreencertificatescheme(tariffliberalisation)hasexcludedWTE.Hazardouswastetreatment(HWT)

6、shouldwitnesslow-teensCAGRwithlargerpotentialfordisposalmethod.■Water:stayselective.ForWWT,themulti-trillionRMBenvironmentalPPPprojectscouldcomewithlargersize,morecomplexcontentandpotentiallylowerreturns.Thekeycatalystisestablishinginvestmentfundsbyinnovativeoperators(suchasBEW)toconvertcapexpr

7、essureintoupfrontcashearningsandreduceoperationalearningsrisks.Withoutsuchstructure,operatorscouldfacecapexpressureandexecutionrisks.Separately,WWTtariffsareontheuptrend,whichshouldreduceprofitabilityconcerns.■Stockcalls.Weusedisc