Events:

Feida Environmental Protection released its annual report today, with an operating income of 1.96 billion yuan, an increase of 17% over the same period last year, a net profit of 40 million yuan for shareholders of the parent company, an increase of 111% over the same period last year, and a comprehensive gross profit margin of 16%, an increase of 0.2% over the same period last year. Basic earnings per share is 0.21 yuan. The dividend plan is to distribute 1 yuan (including tax) for 10 shares and increase 10 shares.

Comments:

In 2013, the company realized an increase of 20 million yuan in net profit (up 111% from the same period last year), mainly from two aspects: (1) benefiting from domestic environmental protection, orders increased rapidly, and business income increased by about 300 million yuan compared with the same period last year. (2) the reduction of the scale of borrowing and the reduction of interest expenses resulted in a decrease of 25 million yuan in financial expenses compared with the same period last year.

In addition, due to the increase in government subsidies, non-operating income increased by 73% compared with the same period last year (but still slower than the growth rate of operating profit, which was 99%), accounting for 21% of the total profit, and the performance contribution was still significant.

Considering the development of Feida's own main business, it is expected that the 14-and 15-year attributable net profit is expected to achieve a rapid growth of 90% and 40%. If this merger is successful, it will provide new impetus for the development of the company in 16 years' time. As estimated by our above performance growth rate, the EPS for 14-15 years is 0.38 yuan and 0.53 yuan respectively. As a provincial environmental protection integrated platform company, its market value still has room for further improvement, which deserves long-term attention. It gives the 2015 target dynamic PE42 times, corresponding to the target price of 22 yuan, and gives the overweight rating for the first time.