Main points of investment:
The leader of magnetic separation technology. Huaneng Technology was founded in 2002 and listed on A shares in February 2015. The company started with magnetic separation technology, the equipment is mainly used for metallurgical turbid ring water treatment, and then successfully developed super magnetic separation technology, extending the application field to coal mine water and other industrial end water treatment, black smelly water emergency treatment, municipal sewage treatment.
The demand for industrial-side governance has led to a pick-up in the growth rate of the company's water treatment equipment sales. In the past few years, with the continuous downturn in the iron and steel and coal industries, there has been no significant increase in the sales of the company's magnetic separation equipment. Since 2017, the profitability of industrial enterprises has begun to significantly improve the regulatory environment superimposed with stricter environmental regulation, and the rigid demand for industrial-side governance has increased. According to the data, the company's sales revenue of complete sets of water treatment equipment in the first half of 17 years was 136 million yuan, an increase of 55% over the first half of 16. We expect equipment sales in the second half of 17 years to continue the growth trend of the first half of the year.
Black smelly water treatment market opened, bringing performance flexibility for the company. According to the requirements of the Ten principles on Water, the built areas of municipalities directly under the Central Government, provincial capitals and cities separately listed on the State plan should basically eliminate the black and smelly water body by the end of 2017, and the built areas of cities at prefectural level and above will control the black and smelly water body within 10% by 2020. We estimate that the whole market space for the treatment of black and smelly water is about 380 billion yuan, and the corresponding space for the part to be treated at present is about 310 billion yuan. As an emergency technology, the company's giant magnetic separation technology is applied in the field of black and smelly water treatment, which has the advantages of fast response, small unit investment, low operating cost and so on. The company's Beijing Laofeng River emergency treatment project was selected as a typical case introduction by the national urban black and smelly water body regulation platform (a total of 16 cases), reflecting the applicability of the company's super magnetic separation technology in the field of black and smelly water body treatment. According to the company's 17 mid-year report, the company signed new orders for municipal water treatment, black and smelly water treatment, watershed management and other related orders totaling about 85 million yuan in the first half of the year. The market space of black smelly water treatment is broad, which brings performance flexibility to the company.
We will continue to expand, improve the water environment industry chain, and create a comprehensive platform for water environment services. Since listing, the company has successively acquired 100% equity of Jiangsu Huada (mainly engaged in research and development, production and sales of centrifuge equipment, with a performance commitment of 3000 yuan, 3300 yuan and 37 million yuan respectively in 2015-17). Or the cumulative non-return net profit of 100 million yuan in three years) and 65% equity interest in Sitong Environment (mainly engaged in municipal water treatment investment operation and project general contract The performance promises to deduct the non-return net profit of 1700, 2500, 28 million yuan in 2016-18, or 70 million yuan in three years). Through two epitaxial mergers and acquisitions, the company distributes the back-end sludge treatment market and municipal water treatment market to improve the water environment industry chain.
Profit forecast. It is estimated that the net profit of the company in 17,18 and 19 is 103 million yuan, 155 million yuan and 192 million yuan respectively, and the corresponding EPS is 0.27,0.41 and 0.51 yuan respectively. Considering the prospect and profit flexibility of the company's industry, it is given a buy rating of 37 times PE in 18 years, corresponding to the target price of 15.17 yuan.
Risk hint. (1) M & An integration is weak, M & An asset performance can not meet expectations; (2) Black odor Water treatment business expansion speed is lower than expected; (3) unsustainable risk of orders in the industrial sector.