Investment logic.
The company is the investment target of environmental protection equipment forgotten by the market. The company is a leader in the domestic Roots blower industry, and its products are widely used in traditional industries and environmental protection industries with good economic practicability. After several years of business focus adjustment, the company's environmental protection attribute has been enhanced, and the water treatment business income has grown rapidly, which has become an important driving force for the overall performance growth. We believe that the demand growth of emerging industries and exports will create new space for the industry, and the company is expected to lead the industry to usher in a new opportunity for development.
This year is expected to welcome the "water ten" policy is positive, the company's performance and valuation is expected to double-click. There is still a gap of more than 10 billion tons in sewage treatment in China, and it is still relatively backward in the construction of towns, rural sewage and industrial wastewater treatment. The "Ten rules of Water" is expected to be released this year, becoming another major benefit for the environmental protection industry after last year's atmospheric prevention and control plan. We believe that the policy will focus on making up for the shortcomings in the construction of industrial wastewater and sewage facilities below established towns, accelerate investment in small and medium-sized sewage treatment plants, and boost the procurement demand for fans which may reach 10 billion yuan. Thanks to its high market share and its own competitive strength, the company will directly benefit from this policy and is expected to usher in a double-click of performance and valuation.
The traditional business is stable and rising, and pneumatic conveying is the bright spot. 1) the demand for fans in some industries has declined, but the demand in environmental protection, chemical and other industries will still grow rapidly; 2) the order of slurry pump is good, and the development of new applications is progressing smoothly; 3) the removal of production capacity in the cement industry has led to a great reduction in mill revenue, demand stabilization, new field expansion and the superposition of low base effects led to a rebound in performance. 4) the market space of pneumatic conveying is large, and the company gradually finds a suitable business model to drive the rapid growth of performance.
Profit forecast.
We forecast that the company's operating income in 2014 will be 594 million yuan, 715 million yuan and 820 million yuan respectively, up 5.1%, 20.4% and 14.8% respectively over the same period last year, and the net profit will be 97 million yuan, 116 million yuan and 134 million yuan respectively, up 19.9%, 20.9% and 16.3% respectively over the same period last year.
The EPS is 0.31,0.37 and 0.43 yuan respectively.
Valuation.
The company's forecast price-to-earnings ratio for 2014-2015 is 30.5 times and 25.5 times respectively, which is the same as that of comparable companies in the industry. However, considering that the company's product structure adjustment is more inclined to the environmental protection industry, there is the possibility of raising the valuation this year and next year, so it will be given a "holding" rating, with a target price of 12 yuan.
Risk.
The uncertainty of the "Water Ten articles" policy; the sharp decline in downstream demand; the tightening of monetary policy has led to the shortage of customers' withdrawals.