Founder Securities has issued a research report on Baguio Green Group (1397.HK), assigning a ‘Strongly Recommended’ rating and a target price of HK$1.10. This target suggests a potential 57% increase from the closing price on the date of the report.
One of Hong Kong’s largest integrated environmental services groups
Founded in 1980, Baguio was listed on the Stock Exchange of Hong Kong in 2014. The Company’s core businesses include cleaning, waste management and recycling, landscaping and pest management. Since its establishment, the Company has focused on the provision of cleaning services and has become one of the largest integrated environmental service providers in Hong Kong. The Company’s clients cover a wide range of industries and organizations, such as government departments, public organizations and multinational corporations.
Benefiting from the implementation of the MSW Charging policy
The HKSAR Government’s Municipal Solid Waste Charging (MSW Charging) will implement on 1 April 2024. Founder Securities is optimistic about the Company’s prospects as it will directly benefit from the implementation of the policy. The increase in public expenditure on waste treatment and recycling services is expected to generate incremental revenue for the environmental and cleaning companies. Since 2008, Baguio has been providing quality, sustainable, and comprehensive waste management services and integrated solutions for the collection, management, and recycling in Hong Kong.
Technology-enablement driving contracts on hand to a record high
For a long time, cleaning service has been a labour-intensive industry that relies on manpower to meet operational needs. In 2022, Baguio launched its green technology business to provide biotechnology, smart intelligence, Internet of Things, big data and AI solutions. Through technology enablement, the Company has won a number of government contracts. As of October 5, 2023, the Company’s contracts on hand increased to a record high of approximately HK$4.74 billion, which is expected to turn into revenue and profit in the future.
Profit forecast and investment Rating
According to Founder Securities, the Company has a competitive edge and has been rapidly gaining government contracts in the past three years. The Company’s contracts on hand increased to a record high of approximately HK$4.74 billion, which is expected to turn into revenue and profit in the future. Some of the Company’s recycling contracts charge the government on the basis of the weight of recyclables converted into reusable materials (e.g., PET bottles converted into recycled materials). The accelerated development of the recycling industry in Hong Kong will result in a significant increase in the recycling volume, contributing to the Company’s expected incremental performance. The firm estimates the Group’s profit for the year attributable to equity shareholder of the Company for 2023 and 2024 to be HK$41.4 million and HK$58.11 million respectively, corresponding to earnings per share of HK$0.10/ HK$0.14. Based on 8 times target P/E ratio and 2024 earnings, Founder Securities rates Baguio as ‘Strongly Recommended’, with a target price of HK$1.10.