Event: the company achieved operating income of 1.107 billion yuan in 2016, an increase of 29.32% over the same period last year, and a net profit of 326 million yuan, an increase of 21% over the same period last year. In the first quarter of 2017, the company achieved operating income of 219 million yuan, an increase of 13.42% over the same period last year, and a net profit of 47 million yuan, an increase of 2.56% over the same period last year.
Core viewpoints
The lower-than-expected performance is mainly due to the decline in the growth rate and profit margin of the engineering business: the company's annual report and quarterly report growth are slightly lower than expected, mainly due to the decline in the growth of local real estate development in Jiangyin. As a result, the growth rate of engineering business dominated by the construction and renovation of pipe network water meters is only about 60%, far lower than the high growth rate of 147% in the first half of 2016. At the same time, the gross profit margin of the engineering business also fell to 56.25% from 61% in 2015, resulting in a 3.8% drop in the company's comprehensive gross profit margin and a 2% drop in net profit margin.
Actively expand hazardous waste projects, good economic benefits are expected to thicken performance: the company began to expand hazardous waste solid waste business at the end of 2015, Qinwangshan project landed at the beginning of this year, has entered the pre-EIA stage. Qin Wangshan consists of two parts: the conventional line and the emergency line, with a treatment scale of 91000 tons and 10,000 tons respectively, with a total investment of 550 million yuan. The annual output of hazardous waste in Jiangyin area is nearly 630000 tons, but there is a lack of facilities for centralized disposal of hazardous waste. Therefore, the construction of Qinwangshan project will effectively alleviate the lack of local disposal capacity. At the same time, the project will also bring good economic benefits to the company. According to estimates, under full load operation, the regular line and emergency line will contribute 197 million yuan in revenue per year, accounting for 18% of the company's 2016 revenue. In terms of net profit, the regular line and emergency line can contribute 41 million yuan and 5.3 million yuan per year respectively, totaling 46.3 million yuan, corresponding to 14% performance flexibility in 2016.
The main business operation is stable, actively promote the layout of the environmental protection industry chain: the company's main business operation is stable, at the same time actively expand the environmental protection industry chain, and have made breakthroughs in the fields of sewage treatment, water environment treatment, solid waste and hazardous waste, and the transformation layout has been steadily advancing. The company is determined to transform, the direction is clear, and the local platform has significant advantages, so the comprehensive platform of local environmental protection can be expected in the future.
Financial forecasts and investment suggestions
Considering the company's project schedule and profit level slightly lower expectations, we lowered the profit forecast, 17-19 years to achieve attributable net profit of 3.97,4.53, 490 million yuan (originally 5.80,759 million yuan in 17-18 years), corresponding to EPS of 0.42,0.48,0.52 yuan (originally 0.62,0.81 yuan in 17-18 years). With reference to the comparable company's valuation of 21 times PE in 17 years, the target price is 8.82 yuan, maintaining the "buy" rating.
Risk hint
The risk that the project schedule and profitability are not up to expectations
