Incident: Chongqing Water released its semi-annual report. In the first half of 2022, the company achieved operating income of 3.452 billion yuan, +8.61% year on year; achieved net profit of 936 million yuan, -11.27% year on year, and achieved net profit of 846 million yuan after deduction, +9.35% year on year.
Comment:
Chongqing is a leader in the water supply and drainage business with sufficient production capacity. The company is the largest integrated water supply and drainage operator in Chongqing. It has the advantages of an integrated factory network and a complete industrial chain. By the end of 2021, the company and joint ventures had jointly shared about 86% of the tap water market in the main urban area of Chongqing and 92% of the sewage treatment market in Chongqing, and had a leading regional advantage in the water supply and drainage market in Chongqing. By the end of June 2022, the company's water supply enterprises had 25 water production systems, with a production capacity of 3.1215 million m3/day, an increase of 96,000 m3/day over the beginning of the year; the drainage company put into operation 106 sewage treatment plants, with a daily treatment capacity of 4,258.55 million m3/day; 8 sludge treatment systems with a daily sludge treatment capacity of 1992 tons.
The financial structure is sound, and there is continuous profitability. As of June 30, 2022, the company's balance ratio was 43.83%, gross margin was 44.22%, and net interest rate was 27.14%. It has a sound financial structure and good profitability. In the first half of the year, the company's net cash flow from operating activities was 985 million yuan. The cash flow was stable. It had the conditions to seek relatively low financing costs, which could provide good financial support for the company's development.
To build a first-class integrated water service provider in China, the “14th Five-Year Plan” still has room for development. In addition to its business in Chongqing, the company has entered the water environmental protection industry in Sichuan, Yunnan, Hubei, Henan and other provinces and cities. Focusing on the strategic goal of building a first-class integrated water service provider in China, the company is actively expanding domestic water supply and drainage and related industrial markets to accelerate cross-regional development. During the “14th Five-Year Plan” period, the company will unswervingly specialize in improving the main water supply, drainage and sludge business. It is estimated that the total scale of water supply and drainage will reach more than 9.3 million m3/day, and the daily sludge treatment and disposal capacity will reach 4,680 tons. There is still room for development.
Profit forecast and investment rating: It is predicted that in 2022-2024, the company's revenue will be 79.1/86.3/9.46 billion yuan respectively, an increase of 9.1%/9.1%/9.6% over the previous year; the net profit of the mother is 21.8/23.6/2.47 billion yuan respectively, with a year-on-year growth rate of 5.1%/8.2%/4.8% respectively; the corresponding PE is 11.8/10.9/10.4 times, respectively, maintaining the company's increase rating.
Risk warning: capacity growth falls short of expectations; capacity utilization falls short of expectations; water price increases fall short of expectations; sludge business growth falls short of expectations; cost growth exceeds expectations, etc.
