Main points of investment:

Events:

On the evening of October 29, the company released a report for the third quarter of 2015. The company's revenue in the first three quarters was about 1.458 billion yuan, an increase of 12.01 percent over the same period last year. The net profit attributable to shareholders of listed companies was about 327 million yuan, an increase of 28.45 percent over the same period last year. Basic earnings per share was 0.23 yuan per share, an increase of 27.78 percent over the same period last year.

Comments:

Steady endogenous growth, profitability continued to improve in the first three quarters, the company's revenue achieved steady growth, of which the company achieved revenue of about 532 million yuan in the third quarter, up 13.58% from the same period last year and 4.63% from the previous month, showing a good growth trend. In terms of gross profit margin, the company's comprehensive gross profit margin in the first three quarters was 46.23%, an increase of 0.97pct over the same period last year; among them, the gross profit margin in the third quarter was 50.33%, which increased by 1.74pct and 8.73pct respectively compared with the same period last year, and the company's profitability continued to enhance, mainly due to the gradual emergence of the effect of strengthening operating cost control.

The cost control remains strong, and the expense rate decreases gradually during the period.

In the first three quarters, the company's period expense rate was 14.39%, down 3.37 pct from the same period last year; in the third quarter, the period expense rate decreased by 4.47pct and 2.33pct respectively compared with the same period last year and month-on-month. Itemized, the company's management fee in the first three quarters was 4.78%, a slight decrease in 0.73pct compared with the same period last year, with a decrease in 0.47pct and 0.39pct in the third quarter compared with the same period last year and month-on-month respectively. In terms of financial expenses, the company's financial fee in the first three quarters was 9.03%, a decrease of 2.80pct compared with the same period last year, of which 4.13pct and 1.92pct decreased respectively in the third quarter compared with the same period last year, mainly due to the repayment of part of the long-term loans ahead of schedule, resulting in a significant reduction in financial expenses. In addition, the company added new sales expenses in the first three quarters, with a sales rate of 0.17%, mainly due to the expansion of the whole process deodorization business of the subsidiary Kaiying Company and the special collection of market developer fees. On the whole, the company maintains a good ability to control expenses, which gradually reduces the expense rate during the period, and further improves the profitability of the company.

Join hands with Tianjin Film Science and Technology to conspire with the water treatment market, with abundant funds to speed up the development.

In September, the company signed the Strategic Cooperation Framework Agreement with Tianjin Film Technology, and the two sides will cooperate in technology, market and resources to jointly expand the water treatment market. Jin membrane science and technology is the leader in the field of membrane water resources, and has a core competitive advantage in membrane technology and products. Hand in hand with Tianjin film science and technology, by giving play to the synergy effect, the company's comprehensive competitive strength will be further enhanced, and will get more market opportunities. At the same time, by the end of the third quarter, the company has about 1.43 billion yuan in cash on hand, and more abundant funds will also provide strong support for the further expansion of the company's business (including possible extension development). We believe that foreign cooperation and financial assistance are expected to accelerate the company's business expansion and accelerate the development of transformation and upgrading.

Profit forecast and investment rating

We estimate that the EPS of the company in 2015-17 is 0.29 EPS 0.34 RMB 0.38 per share, and the corresponding PE is 39X/32X/29X. The company has a sound operation and sustained strong endogenous growth. in the future, it may speed up its business expansion in the field of water treatment and continue to promote its business layout in the emerging field of environmental protection by strengthening foreign cooperation and restarting the extension model. its transformation and upgrading is expected. Continue to maintain the company's "overweight" investment rating.

Risk hint

1) the implementation of policies such as "Water Ten articles" and the promotion of PPP model are not as expected.

2) the progress of upgrading of sewage treatment plant is lagging behind.

3) Business expansion is lower than expected

4) the increase of sewage treatment cost leads to the decrease of gross profit margin.