Biyuan Green Business makes efforts in multiple areas with attractive dividend yield.
Although Hong Kong's economy has been significantly slowed down in recent years due to changes in the external economy and the impact of northbound consumption, the continuous implementation of central economic stimulus policies is conducive to Hong Kong's digital and intelligent technological transformation. It is expected to become the city with the most extensive access to high-tech international talent resources in the Greater Bay Area economic system. According to the Hong Kong government's plan, the future Northern Metropolis will become one of the rapidly developing regions to shoulder this important responsibility.
According to the "Northern Metropolis Action Agenda 2023," the Northern Metropolis will cover an area of 30,000 hectares, accounting for about one-third of Hong Kong's total area, covering Yuen Long District and North District, including existing new towns such as Yuen Long, Tin Shui Wai, Fanling, and Sheung Shui, as well as several new development areas at different planning and construction stages and their adjacent areas. The current population is about 980,000, with approximately 400,000 residential units and 134,000 jobs. In the future, the area will complete more than 500,000 new residential units, becoming a key hub for Hong Kong's future housing supply. After full development, the entire Northern Metropolis is expected to accommodate 2.5 million people, accounting for about one-third of Hong Kong's current population, 1.5 times the current population of the area.
The Northern Metropolis is the "International Innovation and Technology New Town" that the Hong Kong government is determined to build. It is also the urban core area and innovation and technology industrial base closest to Shenzhen's strongest development momentum. With the advantage of seven ports, it is expected to become the engine driving Hong Kong's development and an important platform for cooperation with other Greater Bay Area cities. Based on the major construction of the Northern Metropolis, as Hong Kong's largest comprehensive environmental hygiene and cleaning service provider, $BAGUIO GREEN(01397.HK) has huge development potential.
As of June 30, 2024, Baguio Green's street cleaning service covers seven districts in Hong Kong, serving a population of about 2.8 million. This not only marks Baguio's leading position in Hong Kong's cleaning service market but also provides a solid foundation for future expansion into the Northern Metropolis. Baguio Green currently covers the main Yuen Long District in the Northern Metropolis, with ample opportunities for further expansion. Baguio Green is also the comprehensive environmental hygiene service provider with the widest service span in Hong Kong's environmental hygiene service industry, covering street cleaning, waste management and recycling, gardening, pest control, and other fields. In the first half of 2024, Baguio Green's total revenue reached HKD 1.29 billion, an increase of 16.6% year-on-year, mainly due to the continuous growth of the group's cleaning, waste treatment, and recycling businesses. Profit for the period was approximately HKD 25.8 million, an increase of about 18.5% year-on-year. Overall gross profit increased by about 12.4% to approximately HKD 97.1 million.
Based on annualized profit calculations, the company's current price-to-earnings ratio is less than 5 times, with an expected dividend yield of up to 7% or more, making it worth attention.
Waste Treatment and Recycling Business Leads the Breakout
Among the several business segments mentioned above, the cleaning business is expected to maintain long-term stable growth, while the waste treatment and recycling business is expected to be the most explosive in the next few years as environmental awareness of waste recycling increases, and it is expected to become Baguio Green's second growth curve. In addition to these two business segments, the continuous development of Baguio Green Technology is also worth looking forward to.
Benefiting from economic growth and the improvement of citizens' environmental awareness, Baguio Green's waste treatment and recycling business achieved stable growth in the first half of this year, with revenue increasing by about 7.4% year-on-year to approximately HKD 147 million, accounting for about 11.4% of the group's total revenue. However, the gross profit of this business increased by about 60.7% year-on-year to approximately HKD 19.2 million, mainly due to the "Plastic Recycling Pilot Scheme" entering the harvest period and the increase in recycling points and income from related government contracts. During the period, the group provided waste collection services for five districts under the government, serving a population of about 1.6 million, and also provided collection services for thousands of recycling points in Hong Kong, including plastic, glass bottles, metal, waste paper, and food waste, along with recycling bins in public places and schools. During the period, the group continued to provide plastic collection services for multiple districts in Hong Kong under the Environmental Protection Department's "Plastic Recycling Pilot Scheme" service contract. In addition, the group also provided recycling services for many "Green Community" recycling stations, smart recycling machines, and different institutions under the Environmental Protection Department, responsible for glass container collection and processing, as well as food waste collection services in multiple districts in Hong Kong.
As the remaining capacity of Hong Kong's two landfills is less than 20%, based on the current daily waste reception volume, the two landfills will be saturated by 2026 and need to be moderately expanded. At the same time, many experts suggest that in the next year or two, electronic recycling facilities suitable for food waste and household waste classification should be accelerated in housing estates across Hong Kong to significantly reduce the pressure of landfill expansion.
Finally, it is worth noting that the group successfully obtained a total of HKD 1.48 billion in new contracts in the first half of this year, with cumulative orders reaching HKD 4.6 billion, laying a strong foundation for growth in the second half of 2024 and beyond. At the same time, Baguio's self-developed smart recycling bins have been provided to government departments for deployment in multiple districts, and it is expected that there will be great business opportunities in the future. With the continuous increase in demand for smart recycling bins, Baguio's profitability will break through. Coupled with stable and generous dividends, Baguio Green is worth double attention.
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