Event

The company releases its annual report for 2016

Event: Bohai shares released its 2016 annual report on the evening of March 20, 2017. the company achieved operating income of 799 million yuan in 2016, up 4.93% from the same period last year, and realized net profit of 42.55 million yuan, down 6.20% from the same period last year. Net profit after deduction was 40.76 million yuan, down 9.68% from the same period last year.

Brief comment

Rising financial costs drag on performance

The decline in performance is mainly due to the increase in financial expenses. The company's financial expenses increased from-12.7 million yuan in 2015 to 13.99 million yuan in 2016. the change is due to a decrease in the number and income of BT projects and the corresponding interest income (BT projects are repurchased by the government and the income is recognized as interest income). In the long run, the impact of the increase in financial costs caused by this reason on the performance of the company is not sustainable. As the business expands, the company's performance will resume its upward trend.

The company's location advantage is obvious, and the water chain is steadily expanding.

In terms of water supply business: the company is the only supplier of Luan water diversion from Luan River in Tianjin Binhai New area, with monopoly barriers and obvious location advantages. Water supply business continues to contribute high quality and stable profits to the company, and the newly signed order will further increase the performance. Sewage business area: projects under construction have been put into production, sewage treatment capacity has increased rapidly, and the project area has been expanded from North China to the whole country. With the huge market space and flexible business model for water treatment in the future, sewage business may become a new profit growth point for the company. At the same time, the rapid development of Binhai New area and the promotion of Beijing-Tianjin-Hebei integration strategy will bring additional growth opportunities for the company.

Acquisition of Jiacheng Environmental Protection, completion of share transfer, industrial layout of "Operation + Technology + Engineering"

Jiacheng Environmental Protection is a leading environmental protection enterprise in Hebei Province, with a good reputation and complete qualifications; has 8 franchises and numerous achievements in North China; has an independent R & D team and strong technical strength. In the future, the two companies will form good coordination: 1) most of the customer resources of Jiacheng Environmental Protection are concentrated in Hebei, while Bohai shares have a strong market advantage in Tianjin. The integration of the two will help the company to obtain more project opportunities in the context of Beijing-Tianjin-Hebei integration. 2) Jiacheng Environmental Protection has "technical strength", "engineering qualification" and "operational experience". After the completion of the merger and acquisition, the business structure of Bohai shares based on water supply services will be strongly supplemented, and the scale of revenue and profits is expected to increase rapidly.

In 2016, the company cooperated with Jiacheng Environmental Protection and successively won the bid for two PPP projects in Shahe City and Lulong County, achieving a major breakthrough. In the future, the follow-up projects in the PPP field will be landed, and it is worth looking forward to achieving high performance growth with the help of the PPP boom. At present, the equity related to Ka Cheng Environmental Protection has been transferred and consolidated in January, with a 17-year performance commitment of 178 million, which will greatly promote the company's profits and revenue scale.

Multi-field layout, the development of an industrial investment holding group integrated with water, ecology and health is worth looking forward to the company's recent plan to acquire Jiacheng environmental protection to expand sewage treatment business; to set up an environmental protection industry fund to invest and cultivate the high-quality target of the environmental protection industry chain; join hands with South University of Science and Technology to set up a research institute to promote the combination of universities and enterprises and the transformation of scientific and technological achievements. Futianhe in the capital increase, initially involved in the field of pension, the continuous expansion of business coverage areas, areas and scale, highlighting the company's ability to operate capital, as well as the determination to optimize and adjust the industrial structure. With the help of the company's state-owned enterprise background and the flexibility of capital operation, it is worth looking forward to developing into a large-scale industrial investment holding group in Beijing-Tianjin-Hebei region.

The company has a small market capitalization, high flexibility and maintains a buy rating.

The company has unique location advantages, and the water business will maintain steady growth; the business field will expand significantly after the merger and acquisition of Jiacheng Environmental Protection; the PPP project boom brings rapid growth opportunities; the goal of building an industrial holding platform with the help of capital operation is clear; at the same time, it also has the characteristics of small market value, high flexibility and good growth, and maintains the buy rating. It is estimated that the revenue of the company in 17 and 18 years is 17.87 and 2.146 billion respectively, the net profit of returning to the mother is 1.59 and 208 million respectively, and 0.63 and 0.82 yuan respectively for EPS.