Event: the company announced that it signed the "Cooperation Agreement on Water supply and drainage Construction Project of 100 towns in Heilongjiang Province" with the Department of Housing and Construction of Heilongjiang Province. the water supply of villages and towns is mainly implemented by BOT, and the sewage treatment of villages and towns is mainly implemented by BT+O. The construction of the first batch of 3-5 demonstration towns will be completed in 2014, and the company will invest no less than 5 billion yuan to complete the 100-town project in the next five years.
The company's rural water project has entered the stage of remote replication. The company signed a rural water agreement in 200 towns of Shandong Province in early 2014, and acquired Sichuan Yisitong Company at the end of June 2014. Together with this Heilongjiang project, the company has made progress in three provinces. The number of unsafe drinking water in rural areas is large, and the sewage treatment rate is low (about 20% in townships and even lower in villages). With the continuous exploration in the process of the project, the business model and funding sources of rural water affairs will be gradually clarified and solved. After the model of rural water affairs gradually matures, companies can replicate rural tax projects more quickly in other areas.
It is expected that the Heilongjiang agreement will be translated into performance faster. Compared with the previous Shandong agreement, this agreement has a more detailed agreement on the progress of the project and follow-up investment, of which the first batch of construction will be completed within 2014. We expect the Heilongjiang agreement to be translated into performance faster.
Profit forecast and investment advice. The total investment of Heilongjiang project is expected to be about 5 billion yuan, which will bring additional performance increment, but the pace of realization remains to be determined, so the profit forecast for 2014-2016 is maintained, and the EPS is expected to be 0.17,0.31,0.39 yuan respectively. Considering that the company is the target of rural water scarcity, the continuous expansion of the project is expected to obtain water pollution control policy support in the future, giving the company 25 times the PE level in 2015, raising the target price to 7.75 yuan and maintaining the "overweight" rating.
Risk factors: the progress of rural water affairs promotion is slow, and the income of leachate and industrial wastewater is lower than expected.
