Event: according to the annual report released by China Control Seg, the company achieved operating income of 298 million yuan in 2016, an increase of 74% over the same period last year, and a net profit of 9.98 million yuan, an increase of 42.39% over the same period last year. Earnings per share are 0.0099 yuan.
Core viewpoints
Completed business transformation, 2016 performance is lower than expected, Q4 performance is outstanding: the company completed backdoor in 2014 and has successfully focused its business focus on urban planning and environmental governance with Sponge City as the core. The net profit attributed to 9.98 million yuan in 2016 was slightly lower than expected, mainly because the construction progress of the PPP project in Sponge City was lower than expected. in terms of income structure, the income of technical consulting and planning services accounted for 67%, and that of environmental protection equipment and materials accounted for 27%. However, the net profit attributable to Q4 reached 41.19 million in a single quarter, mainly affected by the settlement of engineering and planning business at the end of the year.
The project company has been established and its future performance can be expected: in the bidding for the first and second sponge city PPP projects, the company has successively won the bid for the PPP project in three sponge cities, Qian'an (1.12 billion), Suining (1 billion) and Yuxi (1.41 billion), and has set up project companies respectively, ranking first in the country in the number of winning bids. At the same time, the company is actively participating in the preparatory work of bidding for PPP construction projects in sponge cities such as Fuzhou, Zhuhai and Pingxiang. Qian'an, Suining and Yuxi projects will bring greater flexibility to the company's performance after entering the large-scale construction period.
The progress of the fixed increase is lower than expected: as the company originally hired a law firm to continue to provide legal services for this non-public offering due to its own reasons, the company has submitted an application for suspension of examination to the CSRC in cooperation with the sponsor, and the progress of the additional offering will be lower than expected.
Financial forecasts and investment suggestions
Considering that the project schedule of the company is slightly lower than expected, we downgrade the profit forecast, that is, the net profit of the company in 2017-2019 is 1.84,3.84 and 494 million yuan respectively (originally 2.85 yuan and 472 million yuan in 2017-2018), and the EPS of this additional issue is 0.18,0.38,0.49 yuan respectively (originally 0.28,0.47 yuan in 2017-2018). If you consider this additional offering, EPS will be diluted, but the company's potential profit growth in the future of the project is larger, the performance is expected to improve significantly. The comparable company is valued at 42 times PE in 17 years, and we give a 20% premium, that is, 50 times PE in 17 years, with a target price of 9.00 yuan, maintaining the "overweight" rating.
Risk hint
There is uncertainty in tendering and bidding for PPP projects, and uncertainty in raising funds for non-public offerings.
The construction progress and payment of the Sponge City project may be lower than expected