BofA Securities has issued a research report maintaining its Buy rating on EB ENVIRONMENT (00257), with a target price of HK$6.8, versus the current price of HK$5.29.
The bank highlighted that EB Environment plans to list on the A-share market in the second to third quarter of 2027, a move expected to push dividend per share (DPS) up by 38% compared with 2025 in order to support its A-share issuance plan. The company hopes to compensate for the potential equity dilution from the new share issue by raising its dividend payout.
The report noted that under a 2019 regulation from the State-owned Assets Supervision and Administration Commission, state-owned enterprises issuing new shares must price them above 1 times price-to-book (P/B). EB Environment's management believes that to be included in A-share dividend ETFs, the dividend yield must reach at least 4%. The bank believes that EB Environment's H-shares currently trade at a P/B of about 0.6 times, and that to meet the A-share requirements of 1 times P/B and a 4% dividend yield, the H-shares' current dividend yield would reach more than 7%, making them attractive.
Looking ahead to 2026, the bank expects EB Environment's free cash flow to reach HK$6 billion, operating cash flow of HK$11 billion, capital expenditure of HK$3 billion, and financial costs of HK$2 billion. The ample free cash flow is sufficient to support the current annual dividend payout of about HK$2 billion. In addition, the company's operating projects remain stable, and it has an investment project pipeline of RMB 6.4 billion between 2026 and 2028, which will help sustain construction engineering profits.
The report also pointed out that since Chairman Wang took office in the second half of 2024, EB Environment has made overseas expansion a key development direction in its 15th Five-Year Plan, with the goal of investing in waste-to-energy projects in Belt and Road markets and selling related equipment. To date, the company has successfully secured two overseas projects with total investment of RMB 3.4 billion. Management stressed that it will target an internal rate of return (IRR) on equity of no less than 10%.
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BofA Securities: EB Environment (00257) Plans A-Share Listing Next Year to Help Lift Dividend Per Share, Maintains Buy Rating
Stock News15:22
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