中国情况：1H25 展望_聚焦现金流China Environment_ 1H25 preview_ Stay focused on cash

Summary of Conference Call Notes Industry Overview - The focus is on the China Environment Equities sector, particularly in the context of utility operations and environmental services. Key Companies Discussed 1. Everbright Environment (EBE) 2. Guangdong Investment (GDI) 3. Beijing Enterprises Water (BEW) Core Insights and Arguments Earnings and Financial Performance - Earnings have been negatively impacted by a slowing construction business and asset impairments, which are expected to persist into 2025 [2][8] - EBE's earnings are projected to decline by 13% due to asset impairments and reduced construction revenue [9] - GDI is expected to maintain a 65% payout ratio with a 9% earnings growth, driven by lower finance costs [9] - BEW's earnings are anticipated to drop by 22% due to impairments, although a 3% YoY increase in DPS is expected for 2025 [9] Cash Flow and Dividend Focus - The emphasis is on cash flow quality and dividend sustainability amidst earnings uncertainty [2][8] - EBE is preferred for its improving free cash flow (FCF), which supports a 42% payout ratio for FY24 [2] - GDI is noted for its defensive cash flow and earnings normalization from a low base in 1H24 [2] - BEW is rated Hold due to a high payout ratio of 97% in 2024, limiting dividend upside [2] Capital Expenditure (Capex) Trends - Overall capex is expected to decline by 5-20% YoY in 2025, aligning with reduced construction revenue [3] - GDI and BEW plan to retain/distribute more cash rather than invest, reflecting market saturation [3] - EBE is looking to expand overseas investments, although overall capex will remain disciplined [3] Financial Estimates and Revisions - EBE's revenue estimates for 2025 have been revised to HKD 30,417 million, with a net profit of HKD 4,091 million [16] - GDI's revenue for 2025 is estimated at HKD 18,233 million, with a net profit of HKD 4,478 million [19] - BEW's revenue is projected at RMB 6,000 million for 2025, with a net profit of RMB 1,678 million [10] Valuation and Target Prices - EBE's target price has been increased to HKD 4.50, implying a 10% upside [18][25] - GDI's target price is set at HKD 7.30, reflecting a 7% upside [21][25] - BEW's target price is adjusted to HKD 2.60, indicating a 0.4% downside [24][25] Additional Important Insights - The hazardous waste treatment sector is under pressure, leading to potential further asset impairments for companies like EBE [13] - The report highlights the importance of monitoring dividend policies and cash flow quality as key investment criteria [2][8] - The overall sentiment in the sector is cautious, with a focus on cash management and dividend sustainability amidst challenging market conditions [8][14]