As a comprehensive service provider for overall solutions for municipal sewage and industrial wastewater treatment, the company focuses on the main sewage treatment business, and at the same time expands new businesses. Through equity acquisitions, it has entered fields such as waste incineration power generation, urban and rural waste resource treatment, and sludge treatment, and has gradually developed into a comprehensive environmental management solution provider. On November 3, 2021, the company established a new subsidiary of Zhonghuan Photovoltaics, got involved in the photovoltaic power generation business, and began exploring the field of green and clean new energy, which is expected to become a new driving force for the company's growth. On November 18, the company's issuance of convertible bonds was reviewed and approved on the Shenzhen Stock Exchange's GEM. This round of financing will continue to be used for the in-depth development of environmental protection projects.
Performance grew steadily, and cash flow improved. In the first three quarters of 2021, the company achieved revenue of 780 million yuan, an increase of 20.0%; net profit of 140 million yuan, an increase of 43.1% over the previous year; and net cash flow from operating activities was 100 million yuan, an increase of 212.4% over the previous year. Revenue for a single quarter was 300 million yuan, down 3.6% year on year, and net profit for the first quarter was 50 million yuan, up 25.8% year on year.
Issue convertible bonds and invest in waste incineration power generation projects. The company entered the field of waste incineration power generation and solid waste resource treatment in 2018, forming a dual main business pattern of sewage and solid waste. On November 18, 2021, the company's issuance of convertible bonds was approved on the GEM of the Shenzhen Stock Exchange. The total amount of capital to be raised will not exceed 860 million yuan to be used for the Chengde Luyuan Hot Spot construction project in Chengde County and the domestic waste incineration power generation project in Dancheng County, as well as supplementary working capital. Among them, the domestic waste incineration power generation project in Dancheng County was 800 tons of domestic waste per day, and the Chengde Luyuan thermoelectric construction project in Chengde County was designed to treat 400 tons of household waste per day. According to company estimates, the average annual net profit of the domestic waste incineration power generation project in Dancheng County during the operation period was 18.354 million yuan, and the average annual net profit of the Chengde Luyuan thermal power generation project in Chengde County was 11.124 million yuan. It is expected that after the funds raised are in place, the project will run in an orderly manner, providing a guarantee for the company's profit growth.
Set up a subsidiary to enter the photovoltaic industry. The company established Zhonghuan Photovoltaic Technology Co., Ltd. on November 3, 2021. It is mainly engaged in solar power generation technology services, new energy equipment manufacturing, emerging energy technology research and development, and contract energy management. It closely follows policy trends, helps the country achieve its “double carbon” goal, and creates new profit growth points for the company. In December, Zhonghuan PV and Wuhu Mintway Construction Machinery Co., Ltd. signed a cooperation agreement on the investment and construction of rooftop distributed photovoltaic power generation projects. Zhonghuan PV is responsible for the investment, construction, installation and operation of distributed photovoltaic power plant projects, and the two sides share the power generation revenue. As the first full-industrial plant rooftop distributed photovoltaic power generation project undertaken by Central PV, it meant that the company had a good start in the photovoltaic field.
Maintain a “Highly Recommended - A” investment rating. The company is operating steadily in its dual main business of sewage and solid waste, and is also actively expanding new energy businesses such as photovoltaic power generation. The performance is expected to maintain a high growth rate. Therefore, we predict that the company will achieve net profit of 2.5/33/4.2 billion yuan from 2021-2023, and the corresponding price-earnings ratio will be 13.9/10.5/8.3 times, maintaining the “Highly Recommended - A” investment rating.
Risk warning: There are risks such as implementation of fund-raising projects falling short of expectations, fluctuations in convertible bond prices, declining gross margin due to increased market competition, new orders falling short of expectations, and environmental policy changes.