Fang Xing has not been in the water industry.
The company's main business is tap water production and sales, engineering installation and related water treatment business. 1) Water supply is a sustained and stable industry: economic development and urbanization promote the continuous growth of water consumption, residents have a demand for high quality healthy drinking water, coupled with the scarcity of water resources and the aggravation of water pollution, this highlights the contradiction between supply and demand of water resources. In addition, compared with the international water price level, water charges in China are cheaper. At present, water charges in China only account for 1.2% of personal income, while the international level is about 4%. There is still much room for water prices to rise. 2) increased policy support, the prosperity of the sewage treatment industry is high: the new "Environmental Protection Law", "Water pollution Prevention and Control Action Plan", "13th five-year Plan" national urban sewage treatment and recycling facilities construction plan and other policies have been issued. During the 13th five-year Plan period, the investment market for bid raising and renovation of urban sewage treatment facilities was huge, with a construction investment of about 582.9 billion yuan, 35.6% higher than that during the 12th five-year Plan period. Under the pull of intensive policy, the huge market volume contained in various segments of sewage treatment needs to be released urgently.
The superior water supply business is growing steadily, and the engineering installation business is developing rapidly.
In the tap water business, the revenue in the first half of 2016 was 231 million yuan, an increase of 4.1% over the same period last year, with income accounting for 40.2% and a gross profit margin of about 50%. By 2015, the company has 4 surface water plants with a total design capacity of 1.16 million tons per day. The company's tap water source is taken from the Yangtze River, and the source water quality belongs to the surface II class, which has obvious advantages in water quality. The company has the franchise of water supply in Jiangyin City, and covers the complete water supply industry chain of water collection from source, tap water purification, tap water sales and after-sales service. On January 1, 2016, the ladder water price system for domestic water consumption in Jiangyin City has been implemented; at the same time, the company is also speeding up the transformation of rural water supply networks, coordinating the integrated development of urban and rural water supply, and improving the service level of the main water supply industry.
In terms of engineering business, the municipal engineering company, a wholly-owned subsidiary, is the only enterprise in Jiangyin that can independently undertake the installation and construction of large and medium-sized water pipes. Thanks to the continuous expansion of the external engineering business of the subsidiary, the revenue and profits of the business increased greatly in the first half of 2016 compared with the same period last year, of which the revenue increased by 146.6% to 328 million yuan, the net profit increased by 127.3%, and the gross profit margin was 56.88%. Drive the overall profit to achieve more than 50% growth.
New progress has been made in the extension of industrial chain
Extending the water industry chain, the sewage treatment business has made gratifying progress. In the middle of 2016, Huangtang sewage treatment plant has signed sewage treatment contracts with 141 companies, the contract amount has increased by 25% compared with the same period last year, and the Nanzha sewage treatment plant has newly undertaken the construction of internal sewage pipe networks of 16 companies. Layout of solid waste disposal business, preliminary work has been started. The wholly-owned subsidiary "Splendid Jiangnan" has started the environmental assessment and other preliminary work of the comprehensive utilization project of industrial waste in Qinwangshan, Jiangyin City, and the preliminary work is progressing smoothly.
Financial style remains robust
The company's cash flow is abundant and stable, and the currency book capital is roughly maintained between 10-1.4 billion yuan; at the same time, the company's debt burden is relatively light, with a current ratio and quick ratio of 2.5x2.2 respectively, and the asset-liability ratio remains below 45%. Below 50% of the industry average, abundant capital and sound financial help the company to expand its business. In addition, during the period, the company also participated in the establishment of an industrial fund around the investment operation of environmental industry projects, which is expected to help expand investment channels, reduce financial risks and enhance investment returns.
Valuation rating
1) compared with the valuation of listed companies in the same field, the valuation level of the company is relatively low, and the company has always maintained a dividend payout rate of more than 30% in recent years, and is confident to continue to do so in the future. 2) the main water supply industry has the characteristics of continuity and stability. It can contribute abundant and stable cash flow to the company, while the engineering business expands rapidly and boosts the company's overall profitability. 3) the expansion of the field of sewage treatment and solid waste brings greater performance flexibility for the company. Based on this, it is estimated that the company's vested net profit from 2016 to 2017 is 3.52 / 438 million yuan respectively, the EPS is 0.38 yuan 0.47, the current price is 21.0 yuan 16.9 corresponding to PE, and the target price is 10.50 yuan, which is a buy rating. (current price as at 16 February)
