Items:
On the evening of October 29, 2021, the company released the third quarter report of 2021. 2021Q1-Q3 achieved operating income of 15.226 billion yuan, an increase of 31.52% over the same period last year, a net profit of 1.914 billion yuan, an increase of 106.2% over the same period last year, and basic earnings per share of 0.2607 yuan, an increase of 59.64% over the same period last year. The single Q3 company realized operating income of 6.5996 billion yuan, an increase of 42.85% over the same period last year; the net profit belonging to the shareholders of the listed company was 485 million yuan, down 3.37% from the same period last year; the net profit belonging to the shareholders of the listed company after deducting non-recurring profits and losses was 465 million yuan, an increase of 0.04% over the same period last year; basic earnings per share are 0.0661 yuan.
Comments:
After deducting the equity disposal income, the company's performance is still high. 2021Q1-Q3 's revenue and profits have increased significantly, mainly due to two reasons: 1) driven by traditional water operations and urban water construction business, and 2) the implementation of new accounting standards. According to the new "Enterprise Accounting Standards interpretation No. 14", the company can recognize the construction service revenue of the PPP project that meets the requirements of the principal responsible person during the construction of the project in accordance with the revenue criteria. Although the company earned 662 million yuan through the transfer of shares in high-quality subsidiaries this year, after excluding it, the growth rate of net profit deducted from non-return is still as high as 43.88%, and the overall performance growth rate remains at a high level.
The rising expense rate is a drag on single Q3 profits, and the new criteria affect operating cash flow. The company's net profit fell slightly in the quarter, due to an increase in the rate of expenses. The management expenses and R & D expenses of Q3 alone were 454 million yuan and 38 million yuan respectively, an increase of 13.78 percent and 90 percent respectively over the same period last year. However, high R & D investment has also brought a series of results. On October 26, the company released new sewage treatment technology and signed a memorandum of cooperation with colleges and universities to ensure follow-up cooperation. In terms of cash flow, the cash flow of PPP decreased by-36.09% because the construction expenditure incurred during the construction of 2021Q1-Q3 projects recognized as financial assets should be shown as cash flow of operating activities.
Solid waste water business is stable and improving, REITs catalytic valuation repair. The company's water supply and sewage is the foundation, the operating capacity is outstanding, the actual sewage treatment rate during the 14th five-year Plan period still has a large room for improvement, the company's sewage will rise in volume and price in the future, bringing performance growth; the company's solid waste plate has experienced many years of development, gradually entered the performance release period, the company has a number of projects into the commissioning period, the annual domestic waste treatment capacity of 13.82 million tons. The successful issuance of the company's REITs shows that the underlying assets of the company are excellent. Its more than 300 waterworks can be used as the stock project of REITs, which can improve the valuation of the company as a whole.
Profit forecast, valuation and investment rating. We estimate that the company's net profit from 2021 to 2023 is 20.86,26.36 and 3.078 billion yuan, and the EPS is 0.28,0.36 and 0.42 yuan, with a growth rate of 41.9%, 26.4% and 16.7%, corresponding to PE in 12-9-8. The company's product gross margin rises and the new product is put into production, the growth is determined, using comparable company valuation method, select representative water, solid waste enterprises for comparison, and because the company is the industry leader, a large number of high-quality reserve projects, should enjoy a certain valuation premium, give the company 11 times PE, 2022 target price 3.96 yuan, give "strong push" rating.
Risk hints: increased competition and a sharp decline in subsidies in the solid waste sector due to policy; decline in profits in the sewage and water supply sector due to policy and other factors; and the project production schedule is not as expected.