Event: the company plans to acquire 100% equity of Shanghai Delong Enterprise Development Co., Ltd and Hangzhou Fengdi Environmental Protection Engineering Co., Ltd for a total of 159 million yuan. After the completion of this equity transfer, the company will hold 100% equity in Shanghai Delong and Hangzhou Fengdi, and indirectly hold 66% equity in Yunnan Dafengyuan Environmental Protection Co., Ltd. (target company). The scale of hazardous waste disposal approved by the target company is 33,000 tons / year, including 9000 tons / year incineration, 10000 tons / year landfill, 10000 tons / year physicochemical and 4000 tons / year comprehensive utilization.
In the next city of dangerous waste projects, the integration of mergers and acquisitions is accelerated. In December 17, the company acquired Jiangsu Kangbo, which is the target of high quality and hazardous waste, and is committed to building it into the second main business based on its team, technology and operational experience. This time, the company plans to acquire 66 per cent of Yunnan Dafengyuan indirectly for 159 million, which is another dangerous waste project after Kangbo, so as to lay out the southwest market. It is only a month since the last acquisition, which shows the high executive ability of the team. The target company is the legal operator of Kunming Hazardous waste disposal Center, which disposes of hazardous wastes in Kunming and its surrounding areas by franchise. With a concession period of 25 years, it has the qualifications of incineration, landfill, physicochemical and comprehensive utilization, and can dispose of 37 types of hazardous wastes. Kunming is currently the only scarce and hazardous waste disposal project with the largest variety of disposal types in Kunming. Together with Jiangsu Kangbo, the company is currently in hand-critical waste scale of 71,000 tons / year, and will continue to increase the size and acquire high-quality and hazardous assets in the future.
Entering the southwest hazardous waste market is expected to thicken the hazardous waste performance. The company acquired Yunnan Dafengyuan, opened the southwest market, and further expanded the territory of dangerous waste. According to the Yunnan Provincial Hazardous waste Utilization and disposal Plan (2016-2020) issued by Yunnan Environmental Protection Department in August 2016, it is estimated that by 2020, the production of hazardous waste in the province will reach 5.6 million tons, including 3.295 million tons for self-utilization and disposal, and 1.32 million tons for self-utilization and disposal. At present, 66 hazardous waste disposal enterprises in Yunnan Province have issued license qualifications, with a total permit size of 2.822 million tons, of which 2 million tons are in H48 category alone, while only 3 are harmless, with a license scale of 114000 tons. According to the Plan, the disposal capacity of Yunnan H48 (non-ferrous metal smelting products) is 1.27 million tons, while the total shortfall of H1, 8, 18, 24, 25, 29 and 49 is 380000 tons. Kunming Hazardous waste disposal Center is one of the three major hazardous waste disposal centers in Yunnan in the Plan. The qualification is scarce, and the target company achieves a net profit of about 10.21 million yuan from January to October 2017. It is expected that the utilization rate will increase gradually after the production capacity reaches production steadily. The contribution of performance will be greatly improved.
Maintain the "buy" rating: maintain the forecast of the company's net profit for 17-19 years, which is 154 million yuan, 379 million yuan and 517 million yuan respectively, corresponding to EPS 0.24,0.50,0.68 yuan (considering dilution for 18 and 19 years), and maintain the "buy" rating with a target price of 15 yuan.
Risk hint: after the acquisition of the target company, there is a certain risk that the integration is not up to expectation.
