Core views:
Revenue increased 18% year over year in 2021, tax rate policy disturbances have dissipated, and companies are expected to return to positive growth.
The company released its 2021 annual report and 2022 quarterly report. In 2021, it achieved operating income of 3,332 million yuan (+17.8% year-on-year), net profit of 255 million yuan (-32.1% year-on-year); 202Q1 achieved operating income of 932 million yuan (+22.1% year-on-year), and Guimo's net profit of 0.77 million yuan (-11.1% year-on-year). The decline in performance growth is due to the increase in other earnings under tax rate relief during the pandemic, which increased performance for the same period last year. Other revenue for Q1 2022 was $0.05 billion ($44 million for Q1 last year), and operating profit for Q1 2022 was $92 million after deducting other earnings (+34.3% year-on-year).
New orders are leading the industry by a large margin, and it is hoped that “waste-free cities” will catalyze a recovery in industry demand. In 2021, the total amount of bids won by the company reached 19.038 billion yuan, adding 1,418 billion yuan of annualized services. The total amount of winning bids and the amount of new annual services both ranked first in the industry. Benefiting from order guarantees, the company's environmental health management achieved revenue of 3.320 billion yuan (+19.42% year-on-year) in 2021, and gross margin reached 24.03% (+0.16 pct year-on-year). Demand for the “14th Five-Year Plan” 100 “waste-free cities” was released at an accelerated pace. In 2021, the company won the bid for 116 million “waste-free and low-carbon” garbage sorting projects in Foshan.
The “big city manager” model is gradually gaining strength, and management optimization and intelligence have increased enterprise vitality. As a pioneer of the “city manager” model, the company has successively won bids for the “2.6 billion Lisin Project”, “2.9 billion Lichuan Project”, “1.4 billion Hohhot Project”, “1.1 billion Lianyuan project”, and “6.1 billion Pengjiang project”. The winning bid in the urban service sector was an important achievement for the company in extending the sanitation layout, and relied on the accumulation of sanitation resources to advance into the “big city administration” operation with remarkable results. Furthermore, the company initiated performance evaluations for all employees, promoted the city management system to optimize corporate governance, and accelerated cost reduction and efficiency.
Profit forecasting and investment ratings: City managers are pioneers, maintaining a “buy” rating. The company's net profit for 2022-2024 is estimated to be 306/366/429 million yuan respectively. According to the latest closing price, the 2022-2024 PE corresponding to 2022-2024 was 13.1/11.0/9.4 times, respectively, leading the high-growth sanitation sector.
Combining a comparable company's valuation level and the company's performance growth rate, the company was given a PE valuation of 20 times that of 2022, corresponding to a reasonable value of 14.99 yuan/share, maintaining the “buy” rating.
Risk warning. The expansion of the urban manager model falls short of expectations, and there is a risk that costs and expenses will rise.
