Main points of investment
Event: the company released its 2017 semi-annual report on August 3. During the reporting period, the company achieved an operating income of 1.572 billion yuan and a net profit of 260 million yuan, up 83.62% and 116.13% respectively over the same period last year.
The profitability is stable and the performance continues to increase: in the first half of 2017, the company transferred the contribution share of Hangzhou Xingyuan Jujin Investment Management Partnership (limited partnership) and confirmed that the investment income was 92.3328 million yuan, resulting in a substantial increase in non-recurrent profit and loss. After deducting non-return, the net profit increased by 63.26% compared with the same period last year, lower than the increase in operating income. The company's overall gross profit margin decreased slightly compared with the whole of 2016, driven by a sharp increase in investment income, the company's net profit increased to 16.60%, but the net profit after deducting non-return accounted for 11.87% of total revenue, and profitability maintained the historical average. In terms of business sectors, filter press sales increased significantly compared with the same period last year: during the reporting period, the company's sales of environmental protection equipment and accessories reached 290 million yuan, an increase of 141% over the same period last year. Sales revenue of environmental protection equipment (mainly filter presses) has returned to growth after nearly two years of decline, and the company has capacity reserves for filter presses. It is expected to stabilize and pick up under the lead of the sludge industry during the 13th five-year Plan period.
The extension M & A strategy has been continuously promoted, and the industrial chain closed loop has been formed: since March 2014, the company has successfully expanded 7 environmental protection enterprises. business areas have covered sludge treatment and disposal, water conservancy dredging and dike projects, municipal sewage treatment, industrial wastewater treatment, rural domestic sewage treatment, ecological engineering construction, water quality monitoring and intelligent environmental protection and other fields. In 2017, the company took a new step of M & A, and planned to purchase 100% equity of Source Environmental Protection by issuing shares, with 12.9078 million shares to be issued, with an issue price of 42.61 yuan per share and a transaction consideration of 550 million yuan. Source environmental protection mainly provides Internet of things management and control and information platform products and services in the field of water environment governance. In fact, the comprehensive monitoring operation and maintenance platform can connect all the existing business lines of the company to realize the flattening and intensification of water environment management work. Improve management efficiency; in particular, the river head management system has complete functions, which can effectively reduce administrative costs and conform to the implementation trend of the river head system. The continuous improvement of the industrial chain makes the company have more advantages in PPP project bidding.
PPP has a steady momentum and lays the foundation for performance growth: the company has entered the PPP market since 2015, and signed a PPP project contract of about 8.5 billion yuan (including framework agreement) in 2015, with a construction period of 2-3 years. In the past two years, the company has maintained a steady momentum of taking orders. The contract value of the PPP project signed since 2016 is about 9.5 billion yuan, covering the sewage treatment plant, ecological engineering design and construction, regional overall water environment regulation, river basin management and other fields, laying the foundation for follow-up performance growth.
Investment suggestion: aside from the issue of shares to expand the source of environmental protection, we predict that the company's earnings per share from 2017 to 2019 will be 0.38 yuan, 0.55 yuan and 0.68 yuan respectively. We give the company a-A rating, with a 12-month target price of 32.01 yuan, equivalent to 58 times the dynamic price-to-earnings ratio in 2018.
Risk hint: integration risk, PPP project schedule is not as expected, filter press market demand is not as expected.
