Main points of investment
Event: the company signed a framework agreement with all shareholders of Jiangsu Yongbao Environmental Protection Technology Co., Ltd. (Yongbao Environmental Protection), intending to acquire 70% equity of Yongbao Environmental Protection with 385 million yuan in cash. In this regard, our comments are as follows:
Low-cost acquisition of hazardous assets, environmental protection business to add a new jigsaw puzzle. Yongbao Environmental Protection is a company specializing in harmless disposal, comprehensive utilization and water pollution treatment of hazardous wastes. It has formed a product line of comprehensive utilization products of hazardous waste resources, including polyaluminum chloride products, high-efficiency composite coagulants, polyferric chloride products, defluorination agents and so on.
The company has a total of 120,000 tons / year for the treatment of waste sulfuric acid and waste hydrochloric acid, 45,000 tons / year for aluminum sludge treatment, 15,000 tons / year for oil / water, hydrocarbon / water mixture or emulsion, and 0.5000 tons / year for pretreatment mineral oil. the total qualification for hazardous waste treatment is 185,000 tons / year. In 2016, Yongbao Environmental Protection realized operating income of 78.08 million yuan, an increase of 51.47% over the same period last year, and net profit of 31.41 million yuan, an increase of 977.80% over the same period last year. According to the framework agreement, Yongbao promised to deduct non-net profits of not less than 45 million yuan and 55 million yuan in 2017 and 2018, corresponding to a valuation of only 12 times in 2017. If the acquisition is successful, the company's environmental protection business will increase hazardous jigsaw puzzles and create new growth points.
Intensive signing of strategic cooperation agreements, deep ploughing Henan water market. In June, the company successively signed strategic cooperation framework agreements with the people's Government of Yexian County, Henan Province, Henan Water Conservancy first Bureau and Henan Water Conservancy Investment Group. Among them, Yexian environmental comprehensive management project has a total investment of 500 million yuan, and the cooperation with Henan Water Conservancy Bureau and Henan Water Conservancy Investment Group involves water conservancy, urban water affairs and water resources extension industry, sponge city and other construction projects in Henan Province. The cooperation period between the company and Henan Water Conservancy Investment Group is 30 years, and the investment amount of the project is expected to be about 20 billion yuan. Henan Water Conservancy Bureau and Henan Water Conservancy Investment Group belong to Henan Water Resources Department and Henan Provincial Government respectively. As local state-owned enterprises in Henan Province, they have regional and resource advantages in undertaking Henan water conservancy and water projects. Through cooperation with local state-owned enterprises in Henan Province, the company can deeply participate in Henan water market and greatly expand its business scope.
New shareholders increase their holdings with high standards, and equity incentives show confidence. In June 2016, Tianjin Fengli acquired a 91.96% stake in Jiereng Technology, the controlling shareholder of the company, and became the controlling shareholder of Jiereng Technology, and the actual controller of the company was changed to Mao Fengli.
After the change of the actual controller, the company launched equity incentives, granting a total of 1268 million stock options to a total of 182 incentive targets, such as directors, supervisors, senior and middle managers, core business (technical) personnel, and main managers of subsidiaries. The conditions for exercising the right are: the net profit in 2017 and 2018 is not less than 150 million and 185 million. In April this year, the company further launched a high-specification plan to increase its holdings: chairman Mao Fengli and the company's directors, supervisors and Gao plan to increase their holdings in the range of 110 billion yuan, with a price ceiling of 15 yuan per share. The company's equity incentive sets higher conditions for exercising power, while high-standard management increases its holdings to demonstrate confidence in future development. The company made a net profit of 26.29 million yuan in the first quarter of 2017, a year-on-year turnround and a sharp increase of 265.40%. This is where the change begins.
Investment advice: overweight rating for the first time! The company is expected to make a net profit of 160 million and 200 million from 2017 to 2018. The company's current market capitalization is 5.6 billion, with corresponding valuations of 35 times and 28 times, respectively. The company plans to acquire dangerous waste assets at a low price to significantly increase its performance, ploughing the Henan water market to wait for the project to land, equity incentives and high-standard holdings plan to demonstrate confidence, the first quarter performance to turn losses into profits, the change begins. Cover for the first time and give an overweight rating!
Risk tip: the landing of the project is not as expected.
