Main points of investment
Event: the company issued an announcement on the acquisition of 100% equity in Yongbao Environmental Protection, in which 70% shares were purchased with 385 million yuan, promising that the net profit in 2017 and 2018 would not be less than 45 million yuan or 55 million yuan, and the average net profit should be no less than 50 million yuan. The remaining 30% stake was acquired in 2019, and the overall valuation of the underlying company was revalued at 12 times the audited net profit of the underlying company in 2018, with 30% of the overall valuation of the underlying company as the equity transfer price.
Our comments:
The acquisition landed and the environmental comprehensive platform was further improved: Yongbao Environmental Protection acquired by the company is a company specializing in hazardous waste disposal, with a full-process industrial chain from collection, transportation, pretreatment to disposal and resource utilization. and participated in the national 863 science and technology major project "bulk industrial solid waste treatment and resource utilization technology and demonstration" construction. The fully automatic harmless disposal technology of waste cutting fluid is in a leading position in the industry. After the completion of the acquisition, it will significantly enhance the strength of the company's hazardous waste business and further improve the layout of the company's smoke + water + solid waste environmental integrated service platform. In addition, Yongbao Environmental Protection achieved 78.08 million yuan in revenue and 31.41 million yuan in net profit in 2016, 35.97 million yuan in revenue and 19.16 million yuan in net profit from January to May 2017, which will become a new profit growth point for the company.
Continuous actions, the future development is worth looking forward to: the company has made continuous actions in the first half of the year, signed an industrial investment fund framework agreement with Qinzhi Capital in March (with a total size of no more than 2 billion yuan), and recently signed a strategic cooperation agreement with Henan Water Conservancy Bureau and Henan Water Conservancy Investment Group to further enhance the company's comprehensive competitiveness from the aspects of capital, technology and resources. Since 2015, the company has won several PPP projects one after another, and recently signed a framework agreement with Yexian government on comprehensive environmental management projects (with an investment of about 500 million yuan). Coupled with the rich industrial resources of Fengli capital, the future development is worth looking forward to.
New shareholders increase their holdings and incentives demonstrate confidence: in June 2016, the company replaced its major shareholders into Fengli Wealth. Equity incentives were first launched after the new shareholders were in place. 13 million stock options were granted to a total of 189 people, such as the company's middle and senior management, core business personnel and main managers of the subsidiary, at an exercise price of 7.53 yuan per share. Then, in April, the company announced the plan to increase its holdings. Ms. Mao Fengli, the actual controller and chairman of the company, and other directors, supervisors and senior managers of the company plan to increase their holdings of not less than 100 million and no more than 1 billion of the company's shares within 12 months. it demonstrates the confidence of the management team in the future development of the company.
Investment suggestion: the company's new shareholder Fengli capital industry is rich in resources, which is expected to bring vitality and diversified financing channels for science and technology. The company has formed an environmental governance platform, and future PPP orders will bring high flexibility in performance. We estimate that the EPS from 2017 to 2018 is 0.33,0.59, and the corresponding PE is 24x and 13x.
Risk hint: the order is not as expected and the progress of project construction is not as expected.
