It is anticipated that strategic shareholders will be introduced and working capital will be added to the expansion of environmental protection business. The company announced that it has signed a subscription agreement and will target an additional 80 million common shares to CEF Concept and Go Million after obtaining authorization from the shareholders' meeting, at a price of HK$2.1 (18% discount from the average price for the previous 5 trading days). After the increase, the net proceeds of the company amounted to HK$166.9 million, which will be used as working capital for the company's environmental business. We believe that the completion of targeted distribution will help the company expand its environmental protection business. Working capital was replenished in a timely manner, and the company's capital for the environmental protection industry was guaranteed. Through the fixed increase company, CEF Concept, a company owned by Qingyun Venture Capital, was also introduced as one of the company's main shareholders. Qingyun Venture Capital is a private equity institution focusing on clean technology. It has continued to perform brilliantly and has successfully invested in many companies such as Dongjiang Environmental Protection and Pell You. Expectations of the introduction of strategic shareholders will inject momentum into the development of the company's environmental protection business, which will help the company obtain more high-quality environmental protection projects.
The acquisition of Taiyuan Tianrun Bioenergy Co., Ltd. entered the field of food waste treatment. The company has announced that it will acquire the Taiyuan Food Waste Treatment Project (Taiyuan Tianrun Bioenergy Company). The Taiyuan project has a design processing capacity of 500 tons/day. It is expected that production will be the company's first food waste treatment BOT project within the year. The company has advanced food waste treatment technology and uses an advanced process of washing pretreatment+anaerobic fermentation to turn food waste resources into crude oil ester, methane, organic fertilizer, feed, etc. 30-40% of the revenue from the Taiyuan project comes from the recycling of food waste (the rest of the government subsidies), and the gross margin of project operation is expected to exceed 50%. From an industry perspective, China's food waste treatment market is in the early stages of development. According to the “12th Five-Year Plan”, China's food waste treatment capacity will reach 30,000 tons/day. According to data from the China Sanitation Network, China's food waste treatment capacity is currently only 21,500 tons/day, and there is a huge gap compared to the amount of food waste generated by 100,000 tons/day. According to preliminary estimates, the construction market space for the collection, transportation and treatment of food waste in China is about 70 billion yuan, and the industry has huge potential. The company is entering the food waste treatment industry, which has potential for development, and we expect that the company will benefit greatly from its technical advantages in the layout of this environmental protection sub-industry.
Lay out the field of township water treatment. The penetration rate of urban sewage treatment in China has already exceeded 90%, but the penetration rate of township sewage treatment is still low. The company is seizing this blue ocean opportunity and is laying out township sewage treatment. The scale of township sewage treatment is small. The company cooperates with an enterprise. Its core technology is applied to sewage treatment of less than 20,000 tons and has been applied to more than 60 domestic sewage treatment projects. The company has announced that it has signed a memorandum of understanding to acquire four small-scale sewage treatment projects in Huizhou, Guangdong. We expect the company to explore further investment opportunities in township sewage treatment. Furthermore, the company also announced that it will acquire an Indonesian hydropower developer. We expect to enter the Indonesian market through the acquisition and provide three-dimensional integrated services from hydropower generation to water supply and drainage in the Indonesian market.
Valuation: We expect the company's construction industry to develop steadily in the next 2 years, and the newly expanded food waste treatment and township water treatment industry projects will gradually contribute to profits. Based on the current stock price of HK$2.60, the company's market value is $1.04 billion. In the 2015-16 fiscal year, the company's net profit was 497.15 million, and the company's price-earnings ratio in 2015-16 was 21.6 times.
Currently, all of the company's net profit comes from the construction industry. It is expected that future profits from the environmental protection industry will inject momentum into the long-term growth of the company's performance. We believe there is room for the company's performance to improve in the future, so investors are invited to pay attention.
Risk warning: failure to obtain new high-quality projects in the food waste and rural sewage treatment industry; changes in the acquisition of Indonesian hydropower developers; declining profit margins in the construction sector