Main points of investment
Kangda Environmental Protection won the BOT project of Freshwater sewage treatment Plant in Huiyang District, Huizhou City. The design capacity is 180000 tons per day, with a total investment of 509 million yuan and a franchise period of 25 years. Construction is expected to start at the end of 2016.
Large orders follow, laying the foundation for high growth in the future. Consistent with our previous judgment, after entering the 13th five-year Plan, policy dividends such as "Water Ten articles" and PPP bring new stimulation to the water market, the company's early operation projects speed up, and large orders will burst. Whether in the new PPP project area or the traditional waterworks BOT business, Kangda Environmental Protection has begun to establish a rich order reserve, which is expected to lay the foundation for high growth in the future.
The business of traditional waterworks bottomed out and rebounded, and the growth of new projects recovered in an all-round way. Kangda Environmental Protection's actual cumulative new capacity of BOT business in traditional waterworks this year will reach 637,000 tons per day, significantly exceeding the 2015 level and exceeding market expectations. With the improvement of the competition pattern of the traditional sewage treatment market and the enhancement of the company's ability to take orders, we expect the traditional business section to usher in a full recovery.
PPP orders hit new highs one after another, seizing the policy opportunity to actively transform. Kangda Environmental Protection has sprung up abruptly based on its accumulated strength in the water PPP market and has signed three PPP contracts with a cumulative amount of 3.151 billion yuan. Through innovative models such as investing in Henan Central Plains assets and establishing strategic cooperation with Jiangxi Water Investment, the company has locked in Henan, Jiangxi and other local water PPP projects in advance. Seize the policy opportunities and actively carry out business model transformation, so that the company as an established water group in the emerging PPP market has become a private force that can not be ignored.
Profit forecast and investment advice: we estimate that the net profit of Kangda Environmental Protection, which belongs to the shareholders of the listed company from 2016 to 2018, will be 2.85 billion yuan and 419 million yuan respectively, which is PE11.5/7.8/5.7 times the previous share price.
It will be given 9 times PE in 2017, with a target price of HK $2.10, maintaining the "overweight" rating.
Risk hint: the ability of local finance to pay has declined, the rate of return of PPP projects is lower than expected, and the RMB continues to depreciate.