Dynamic event

The company released its annual report for 2013. In 2013, the company achieved operating income of 734 million yuan, an increase of 8.18% over the same period last year; net profit belonging to shareholders of listed companies was 18.8204 million yuan, up 3.24% from the same period last year; net profit after deducting 16.2476 million yuan, an increase of 210.98% over the same period last year; and earnings per share was 0.07 yuan. The profit distribution plan is to distribute 0.5 yuan (including tax) cash dividend to all shareholders for every 10 shares.

Main viewpoints

A small increase in business volume

In 2013, the company achieved operating income of 734 million yuan, an increase of 8.18% over the same period last year; net profit of 18.8204 million yuan, an increase of 3.24% over the same period last year; revenue and net profit increased slightly over the previous year. This is mainly due to a small increase in water sales and sewage treatment.

In 2013, the company sold 252.18 million tons of water, an increase of 5.48% over the same period last year, and the total amount of sewage treatment was 53.23 million tons, an increase of 8.08% over the same period last year. The business volume increased steadily. The income from water supply and treatment business was 526 million yuan, an increase of 8.65% over the same period last year; the cost was 289 million yuan, an increase of 7.96% over the same period last year; and the gross profit margin was 45.07%, up 0.35% over the same period last year.

The other accounted for a relatively large portion of the pipeline installation business, with a revenue of 143 million yuan, an increase of 5.98% over the same period last year, a cost of 107 million yuan, an increase of 5.02% over the same period last year, and a gross profit margin of 25.03%, an increase of 0.68% over the same period last year. In addition, housing sales, material accessories sales and hotel business revenue declined significantly, but due to the relatively small share of revenue, the impact on the company is smaller.

The expense rate is reduced

In 2013, the company's sales expenses, management expenses and financial expenses were 70.4121 million yuan, 117.5227 million yuan and 57.1265 million yuan respectively, with a ratio of 9.60%, 16.02% and 7.79% to operating income, respectively. The total of the three expenses was 245.06 million yuan, down 137.35 million yuan from the same period last year. The ratio of the three expenses was 33.40%, down 4.75 percentage points from 38.15% in the same period last year.

Investment income fell by 80%, while non-operating expenses increased greatly.

In 2013, the company achieved an investment income of 3.2797 million yuan, down 85.72% from the same period last year, mainly because the profit of the invested unit decreased compared with the same period last year, of which Paradise Silicon Valley contributed 3.163 million yuan, down 80% from the same period last year. The fluctuation of venture capital business has a great impact on the company's performance.

Non-operating income was 11.3634 million yuan, an increase of 8.76% over the same period last year, mainly due to an increase in government subsidies and profits from asset disposal over the same period last year. The non-operating expenditure was 7.7313 million yuan, an increase of 249.13% over the same period last year, mainly due to a loss of 5.3317 million yuan in the disposal of fixed assets, compared with 110100 yuan in the same period last year.

Expand the scale of the main water business

The company plans to raise 745 million yuan in a non-public targeted offering, mainly for the construction of water engineering projects in Zhoushan, Lanxi and other areas and replenishing the company's liquidity, so as to continue the extension expansion of the main water industry. Can it be effectively improved after the implementation of the project?

Investment advice:

Maintain a "neutral" rating for the next six months.

We predict that the company's operating income will grow by 9.43% and 8.26% respectively from 2014 to 2015, and the net profit attributed to the parent company will increase by 19.26% and 18.34% annually. The corresponding diluted earnings per share will be 0.08 yuan and 0.09 yuan, and the corresponding dynamic price-to-earnings ratio will be 101.70 times and 85.93 times, respectively. The company is highly valued. We believe that the company's revenue mainly comes from water supply and sewage treatment, the growth is relatively stable, and the company's "neutral" rating is maintained. We can pay attention to the impact of water price reform on the performance of the company.

The company's water supply scale and water supply quality are conducive to the development of the company's main water business, and the company's main business income and profitability will be further improved.