Main points of investment
Event: when the company released its semi-annual report for 2017, its operating income in the first half of the year was 338 million yuan, an increase of 43.13% over the same period last year. The net profit belonging to shareholders of listed companies was 37.6 million yuan, up 11.81% from the same period last year, and earnings per share was 0.1 yuan.
The steady expansion of business and the consolidation of the four links environment have led to revenue growth, while asset impairment losses have dragged down profit growth.
The steady expansion of the company's business in the first half of the year and the consolidation of the four links environment (one month in 2016) led to a revenue increase of 43.13% to 338 million yuan. specifically, the revenue of complete sets of water treatment equipment and supporting equipment reached 136 million yuan, an increase of 54.98% over the same period last year. The operating income was 75.09 million yuan, up 20.93% from the same period last year, and the income from centrifuges and supporting equipment was 99.34 million yuan, an increase of 18.61% over the same period last year. At the same time, increased investment in marketing, increased borrowing and increased provision for bad debts dragged down profit growth in the first half of the year less than revenue growth, of which the increase in accounts receivable led to an impairment loss of 17.86 million yuan in assets, an increase of 7.07 million yuan over the same period last year. Without taking into account the increase in asset impairment, the company's net profit growth rate will rise back to 32.83%.
The profit level remained stable and the expenses were well controlled during the period. In the first half of the year, the company's overall gross profit margin was 41.99%, a slight decrease of 0.5% compared with the same period last year, of which the gross profit margin of complete sets of water treatment equipment was 46.44% (+ 4.68pp), and the gross profit margin of centrifuges and supporting equipment was 35.38% (+ 3.41pp). Operating business due to reduced water intake, poor influent quality, pharmaceutical, labor costs and other factors affected the gross profit margin fell 14.65 percentage points to 39.97%, dragging down the overall gross margin level. In terms of expense rate, the company's expense rate during the first half of the year was 23.25%, a slight increase of 0.13 percentage points over the same period last year. Among them, the sales expense rate is 9.68% (- 0.43pp), the management expense rate is 12.26% (- 1.09pp), and the financial expense rate is 1.31% (+ 1.64pp). The overall cost control is good.
In the critical year for the treatment of black and smelly water bodies, the volume of the project led to endogenous growth. 2017 is the key year for the treatment of black and smelly water, and the policy requires that the built areas of municipalities directly under the Central Government, provincial capitals and cities separately listed on the plan will basically eliminate the black and smelly water body by the end of the year. Recently, the Ministry of Environmental Protection announced the progress of the implementation of the "Water Ten articles". The data show that 927 of the 2100 black and smelly water bodies in prefecture-level and above cities across the country have completed renovation projects, and there is still a large amount of treatment demand, and the industry space is expected to be released quickly. the company's existing operation is expected to break through from 600000 cubic meters per day to more than 800000 cubic meters per day. At present, the company in hand equipment and operations orders 649 million yuan, in the construction period of BOT/PPP orders 143 million yuan, the follow-up growth is guaranteed.
Equity incentive, controlling shareholder holding interest binding, fixed increase, employee stock ownership to build the margin of safety. In the first half of the year, the company launched equity incentive, according to the assessment target 2017-2019 company bottom performance estimated to be 91.53 million yuan, 120 million yuan and 150 million yuan, the interest binding is consistent. Recently, the company's controlling shareholders have increased their holdings by 20.4 million yuan through the secondary market, with an average price of 9.59 yuan per share, demonstrating confidence in future development. At present, the company's stock price is inverted with the IPO price and the first phase employee share price (about 16 yuan per share after excluding rights), which builds a certain margin of safety.
Profit forecast and investment advice. According to the semiannual report and the equity incentive program, the profit forecast is lowered, and the EPS in 17-19 is expected to be 0.29,0.37 and 0.49 yuan, corresponding to PE39x, 30x and 23x, maintaining the "buy" rating.
Risk hints: downstream industry growth slowdown risk; market development lower than expected risk; M & A performance realization or undercommitment.