EB ENVIRONMENT (00257) plans to list on the A-share market to expand its business and optimize its capital structure. The company's cash flow has significantly improved and turned positive since 2024, benefiting from accelerated subsidy recoveries and cost-saving measures, with steady profit growth across all segments. CMSC maintains its 2025-2027 net profit forecasts at HKD 3.34 billion, HKD 3.56 billion, and HKD 3.83 billion, representing year-on-year growth of -1%, 7%, and 7%, respectively. The current stock price implies P/E ratios of 9.1x, 8.5x, and 7.9x for these years, warranting an "Overweight" rating.

Key highlights from CMSC's report include:

**A-Share Listing Plan** On November 14, EB ENVIRONMENT announced plans to issue up to 800 million RMB-denominated shares, representing no more than 11.52% of its post-issuance share capital, for listing on the Shenzhen Stock Exchange. The proceeds will be used to develop core operations and supplement working capital. With China's waste-to-energy market entering a phase of stock competition, the company may seek new growth opportunities overseas.

**Positive Cash Flow Since 2024, Faster Subsidy Recoveries** In 2024, EB ENVIRONMENT achieved free cash flow of approximately RMB 4 billion, marking its first positive cash flow since 2003. In H1 2025, operating and financial income accounted for 87% of total revenue, up 10 percentage points year-on-year. As capital expenditures continue to decline and revenue structure improves, cash flow is expected to strengthen further. Additionally, EB ENVIRONMENT's subsidiary, EB Green Energy, received RMB 2.06 billion in renewable energy subsidies in July-August 2025, accelerating cash inflows.

**Cost Efficiency and Dividend Growth Drive Value Reassessment** The Environmental Energy segment contributed HKD 2.57 billion (+12% YoY) in attributable profit in H1 2025, driven by cost-saving initiatives and improved operational efficiency. The Water segment posted HKD 409 million (-4% YoY) in attributable profit, remaining stable, while the Green Energy segment reported HKD 139 million (+30% YoY) due to refined management practices. The company raised its dividend payout ratio to 42% in H1 2025, up 7 percentage points YoY. The A-share listing is expected to provide funding for new projects, optimize capital structure, and enhance cash flow and dividend prospects, potentially leading to a value reassessment.

**Profit Forecast and Valuation** With waste-to-energy operations maturing and capital expenditures declining, cash flow conditions are set to improve further. While domestic waste-to-energy growth is limited, EB ENVIRONMENT is expanding overseas, securing two projects in Uzbekistan in H1 2025, which could become a key growth driver. The Water segment may see improved profitability from wastewater treatment upgrades, while cost-saving measures should sustain earnings growth in the Green Energy segment.

CMSC maintains its 2025-2027 net profit forecasts at HKD 3.34 billion, HKD 3.56 billion, and HKD 3.83 billion, with P/E ratios of 9.1x, 8.5x, and 7.9x, reiterating an "Overweight" rating.

**Risks include** slower-than-expected project progress, delayed subsidy recoveries, and intensifying industry competition.