The company released the 2017 semi-annual performance forecast
The company released its 2017 semi-annual performance forecast on July 12, 2017. It expects a performance loss of 1983-24.78 million yuan for the first half of the year, a decline from the profit of 5.76 million yuan in the same period last year. The main reasons for the decline in performance were: 1) the gross margin of sales of engineering projects and membrane products decreased year-on-year; 2) preparations for accounting for accounts receivable bad debt increased year-on-year. The non-recurring profit and loss for the first half of the year was about 2.79 million yuan, which had little impact on overall performance.
The signing of 151 million Wuji County renovation projects favors 2017 performance
The company signed a contract on July 4, 2017, and the Wuji County Tannery Wastewater Centralized Treatment Plant and the Wuji County Urban Integrated Sewage Treatment Plant were upgraded and renovated on December 31, 2017. The contract amount reached 151 million yuan. This amount accounted for 20.2% of the company's revenue in 2016, which is expected to have a positive impact on the company's performance in 2017. However, the company's new engineering orders in 2016 were 715 million yuan, and the number of on-hand orders at the end of the period was 407 million yuan; in 2016, the number of franchise orders in the construction period reached 199 million yuan, so overall, the company's 2017 orders supported performance quite optimistically.
Proposed issuance of shares and payment of cash to purchase assets to enhance performance
The company plans to acquire 100% of Jinqiao Water Technology's shares by issuing shares and paying cash. The total purchase price is 420 million yuan, of which the share consideration amount is 359 million yuan, the issue price is 1543 yuan/share, and the number of shares issued is 23.24 million shares. The lockdown period is 12-36 months; the cash consideration amount is 60.97 million yuan.
Jinqiao Water Technology's performance promises are 2500, 3250, and 42.25 million yuan for 2016-2018, respectively, so it will enhance the company's performance. The offering will raise 111 million yuan in supporting capital. The pricing benchmark date for the issuance is the first day of the issuance period, and the lockdown period is 12 months. The supporting funds are intended to be used to pay the cash consideration for this transaction, the target company's ongoing projects, and expenses associated with the transaction.
The company is competitive in R&D
The company has a complex talent team combining industry, education, research and use. Relying on national key laboratories and academicians' expert workstations, the company continuously strengthens product development and process development, promotes hollow fiber nanofiltration membranes, hollow fiber reverse osmosis membranes, hollow fiber special separation membranes, etc. for industrial wastewater, brackish water, pharmaceutical intermediate purification, etc.; and has developed a series of integrated township integrated sewage treatment technology in conjunction with the national village environment comprehensive treatment market. Technical support helps the company undertake large-scale water resource development projects in market segments such as municipal administration, industry, printing and dyeing, petrochemicals, coal chemicals, and seawater desalination to enhance competitiveness.
The prospects for the company's business direction are good, and the “increase in holdings” rating is maintained
The company's membrane technology is in demand for water treatment technology. The industry prospects are good, giving the company room to rise. We expect the company's EPS for 2017-2019 to be 0.37 yuan, 0.51 yuan, and 0.67 yuan respectively. The company currently enjoys valuation premiums in Xiong'an hot spots, and membrane technology has development prospects. Giving PE valuation 60-63 times in 2017 corresponds to the target price of 22.20-23.31 yuan/share, maintaining the “increase in holdings” rating.
Risk warning: The marketing situation did not meet expectations.
