1H21 performance is slightly lower than we expected.
The company announced 1H21 results: 1H21 realized revenue of 1.56 billion yuan, an increase of 7.4% over the same period last year; net profit from its parent was 150 million yuan, down 19.4% from the same period last year, corresponding to 0.37 yuan per share, slightly lower than we expected.
We believe that the decline in performance is mainly due to the decline of preferential policies for the epidemic.
Urban and rural sanitation and cleaning business grew steadily: 1) the operation of existing projects stably superimposed new projects. 1H21's urban and rural sanitation and cleaning business income increased by 7.6% to 1.51 billion yuan over the same period last year. 26 new sanitation service projects were signed by the company during the reporting period, with an additional bid-winning amount of 8.602 billion yuan. 2) with the rapid development of solid waste business, the company's 1H21 domestic waste disposal income increased by 203.9% to 37.59 million yuan compared with the same period last year.
The expiration of the tax preference affects the gross profit margin, and the cash flow remains robust: 1H21's gross profit margin decreased by 3.1ppt to 25.2% last year, mainly due to the expiration of the VAT preferential policy during the same period of last year; the expense rate during the company period increased by 3.19 ppt to 14.7% compared with the same period last year, mainly due to the increase in the number of company project operations; and the cash flow of operating activities increased by 34.7% to 204 million yuan compared with the same period last year.
Development trend
The strategic layout of "city butler" will be optimized, and new orders will be strong to ensure long-term growth. The company goes deep into cloth.
The bureau's "city butler" strategy, on the basis of consolidating the advantages of traditional business such as cleaning, collection and transportation, actively expand a number of emerging businesses such as greening management and parking lot management. According to the statistics of the Department of Environment, 1H21 has added 8.6 billion yuan in new orders and 660 million yuan in annual contracts, ranking first in the country. We believe that as the company revolves around the "city butler" strategy, actively expand segments with similar business attributes, it is expected to continue to promote the company's orders and ensure the long-term growth of the company's performance.
Speed up intelligent and mechanized empowerment, and be optimistic about the gradual release of economic benefits. 1H21 has introduced new equipment in Hohhot, Guangzhou and Maoming projects to comprehensively improve the mechanization rate and achieve 100% automation of primary and secondary roads. We think that mechanized operation is more helpful to strengthen management and improve work efficiency.
We are optimistic that with the improvement of the level of mechanization, economic benefits are expected to be gradually released.
Profit forecast and valuation
Due to the decline in the company's profitability and the pressure on short-term performance, we reduced our net profit by 12.7% in 2021 / 2022 to 345 million yuan / 430 million yuan. The current share price corresponds to 18.6 times 2021 / 2022 / 14.9 times earnings. To maintain the outperforming industry rating, but based on the short-term pressure on the company's performance, we lowered our target price by 23.2% to 24.50 yuan, corresponding to 29.0 times 2021 price-to-earnings ratio and 23.3 times 2022 price-to-earnings ratio, which has 56.3% upside compared to the current stock price.
Risk
The growth rate of orders is not as fast as expected, the marketization of sanitation is not as expected, and labor costs. The rise exceeded expectations.
