Main points of investment:
Jiangyin City is the only state-owned listing platform. The predecessor of Jiangnan Water Affairs was the former Jiangyin City Water supply Company, which was established in 1997. in 2002, the state-owned capital contribution of the Water supply Corporation was allocated to the public assets management company free of charge.
In 2003, the public assets management company and other shareholders jointly contributed to the establishment of Jiangsu Jiangnan Water Co., Ltd. In 2010, Jiangyin Municipal Government granted the company a 30-year water supply franchise.
The company was listed on the Shanghai Stock Exchange in 2011. In 2012, the company completed the integration of all water supply enterprises in Jiangyin City, becoming the only enterprise engaged in water supply business in Jiangyin City. At present, the company's business covers tap water, municipal engineering, sewage treatment, solid waste and other business. The actual controller of the company is Jiangyin City Public assets Management Company, with a total shareholding of 58.37%. The company is currently the only state-owned listing platform in Jiangyin City. In 2015, the company achieved an operating income of 856 million yuan and a net profit of 270 million yuan, an increase of 14.21% and 52.01% respectively over the same period last year.
Mainly due to the substantial growth of the company's engineering installation business and sewage treatment business.
The tap water business is monopolized in the city, and the engineering installation business is growing rapidly. The company's tap water business has four surface water plants in Xiaowan, Xiaoshan, Chengxi and Ligang, with a total design capacity of 1.16 million tons per day. The water source is taken from the Yangtze River, and the water quality belongs to the surface Ⅱ class. The company's water supply area covers 987.5 square kilometers of urban and rural areas, including water collection from source, tap water purification, tap water sales and after-sales service of the complete water supply industry chain. In 2015, the company supplied 256 million cubic meters of water and sold 238 million cubic meters of water, an increase of 2.64 percent over the same period last year. The average daily water supply was 700100 cubic meters, and the rate of difference between production and marketing was 6.89 percent. Jiangyin City has implemented step-by-step water prices since January 1, 2016. The first, second and third step water prices for domestic water consumption are 2.6 yuan / ton, 3.13 yuan and 4.72 yuan / ton, respectively. At the same time, the company is still upgrading the waterworks and pipe networks, and there is still room for water prices to rise in the future. The company's engineering installation business is mainly managed by its wholly-owned subsidiary Municipal Engineering Company, which has the third-level qualification of municipal public works construction general contracting, and is the only enterprise in Jiangyin that can independently undertake the installation and construction of large and medium-sized water pipes. In 2015, the revenue of the engineering business reached 356 million yuan, an increase of 40 percent over the same period last year, and the gross profit margin was 61 percent, up 4 percentage points from the same period last year.
Actively expand the business of sewage and solid waste. The company's sewage business is mainly carried out by the wholly-owned subsidiary Hengtong Company and the shareholding company Everbright Water (Jiangyin). Hengtong Company has jurisdiction over Nanzha and Huangtang sewage treatment plants with a scale of 35000 tons per day. Everbright Water (Jiangyin) has jurisdiction over Binjiang, Shizhuang, Chengxi and Chengxi Phase II sewage treatment plants with a scale of 190,000 tons per day. The company's sewage business revenue in 2015 was 927 million yuan, an increase of 17.58% over the same period last year.
In December 2015, the company set up a wholly-owned subsidiary "Splendid Jiangnan", which is mainly engaged in medical waste, dangerous waste and so on. At present, Splendid Jiangnan has started the preliminary work of the comprehensive utilization project of industrial waste in Qinwangshan, Jiangyin City.
Profit forecast and valuation. It is estimated that from 2016 to 2018, the net profit of the company belonging to the parent company is 3.32,4.09 and 514 million yuan, and the corresponding EPS is 0.35,0.44,0.55 yuan respectively. With reference to the comparable company's valuation, the company is given a buy rating of 25 times PE in 2017, corresponding to the target price of 11 yuan.
Risk hint. (1) the progress of the company's waterworks upgrading and solid waste projects is lower than expected; (2) the price of tap water and sewage changes; (3) the cross-regional expansion of business is limited.
