3Q21's performance exceeded our expectations.
The company announced 3Q21 results: 3Q21's revenue was 2.134 billion yuan, an increase of 16.0% over the same period last year, and its net profit was 940 million yuan, an increase of 32.9% over the same period last year. 1~3Q21 's income was 5.31 billion yuan, an increase of 19.8% over the same period last year, and its net profit was 1.51 billion yuan, an increase of 34.4% over the same period last year, corresponding to 0.42 yuan per share, which exceeded our expectations, mainly due to: 1) the company's water supply and drainage business was smooth, and the amount of water increased; 2) the company sold water supply assets in the western trough and valley region, affecting the total profit of 195 million yuan; and 3) the special subsidy for sewage treatment taxes and fees increased over the same period last year.
The profitability is stable and the ability to control fees is good. 1~3Q21 's gross profit margin slightly decreased to 45.5% compared with the same period last year, of which 3Q gross profit margin decreased from 6.7ppt to 47.8%. During the period of 1Q, the expense rate increased by 0.58ppt over the same period last year, which remained basically stable over the same period last year, and had a good ability to control fees. The cash flow is abundant, and the cash flow of 1~3Q21 's operating activities increased by 9.09% to 1.91 billion yuan compared with the same period last year, and its ability to obtain cash increased steadily.
Trend of development
Investment in the main business has been greatly promoted, contributing to the steady growth of performance. 3Q21, the company announced the implementation of the comprehensive water conservancy infrastructure PPP project in Anning City, Yunnan Province, and participated in the Dancheng County supporting project PPP project of the Yangtze River and Huaihe River diversion Project. We believe that the steady promotion of the company's main investment projects is in line with the national industrial policy and the company's development strategy, accelerates the company's strategic layout outside Chongqing, and is expected to expand the scale and production capacity and broaden the profit channels. or will continue to consolidate competitive advantages and strengthen the leading position of water services.
Expand the sewage pipe network business and actively explore new growth poles. 3Q21, the company has transferred its 100% equity interest in Chongqing Zeyu building materials, Chongqing Zeyu environmental protection technology and Chongqing Luoyu environmental protection technology to the subsidiary Chongqing Yushui environmental protection, optimizing the equity of sludge treatment and disposal business; and will work with Changjiang environmental protection group component west and east pipe network company to participate in the investment, construction, operation and management of drainage network in the non-central urban area of Chongqing. We believe that the above measures reflect the company's confidence and determination to actively expand its business scope, improve its service capacity and optimize its management relationship. New business development is expected to inject new momentum into the company's performance growth, expand synergy and promote the company's sustainable development.
Profit forecast and valuation
Taking into account the smooth operation of the company's water supply and drainage business and a large amount of income from asset disposal this year, we raised the net profit of 20211b in 2022 by 19.7% in 2022 to 2.25 billion yuan in 2022. The current share price corresponds to a price-to-earnings ratio of 12.0 / 11.9 times 2022. Maintain an outperform industry rating and a list price of 6.50 yuan, corresponding to 13.9 times 2021 price-to-earnings ratio and 13.8 times 2022 price-to-earnings ratio, which has 15.9% upside space compared with the current stock price.
Risk.
The sewage disposal fee went down, the project was not advanced as expected, and the development of the new company was not as expected.
