The scale of sewage treatment is growing steadily, and the expectation of asset injection is strong.
The company is the only domestic A-share motherboard listed company controlled by Zhengzhou Municipal Government, and it is also the only public utility and environmental protection and ecological motherboard listed company in Henan Province. At present, the company is mainly engaged in sewage treatment operation business (2018H revenue accounts for 87.29%, gross profit accounts for 93.91%) and some heating business. At present, the company has a sewage treatment operation scale of 2 million tons / day (due to the repurchase of Wangxinzhuang 400000 tons sewage treatment plant by the government, the plant only operates 80,000 tons / day reclaimed water, the actual operating scale is about 1.68 million tons / day), and the heating area is more than 3.8 million square meters. With the gradual operation of Chen Sanqiao Phase II (150,000 tons / day) and Linying Phase II (30,000 tons / day), the scale of sewage treatment will increase by 180,000 tons per day in 2019, an increase of 10.71 percent. At the same time, according to the major asset reorganization, the purification company promised to build the Zhengdong New area sewage treatment plant (1 million tons / day) and Shuangqiao sewage treatment plant (600,000 tons / day) into listed companies at the end of 2018 and Shuangqiao sewage treatment plant at the end of 2019. If the two sewage treatment plants are injected into listed companies in 2019, the sewage treatment scale of the company will reach 3.46 million tons, an increase of 105.95%. In addition, the controlling shareholder Public Utilities Group has garbage power generation, tap water business and other assets, do not rule out the possibility of injection into listed companies in the future.
Improve the industrial chain to create a comprehensive environmental service platform, sufficient orders to lay the foundation for future growth
The company continues to expand the industrial chain on the basis of urban sewage treatment and central heating, and has been extended to reclaimed water reuse, biogas utilization, construction waste, village sewage, watershed treatment, sludge treatment, photovoltaic and other fields. the scope of business covers "big public, big environmental protection, big ecology" and other areas. The company continues to improve the industrial chain to build a comprehensive environmental service provider, and show a first-class ability to take orders. Since 2017, it has won the bid for Xinmi sewage treatment and gully comprehensive treatment project (3.222 billion yuan), Xinyang City Mianhe Phase III water environment comprehensive treatment project (2 billion yuan), Minquan County water engineering integration construction and reconstruction project (815 million yuan), Fangcheng County central district Panhe and Sanli River environmental comprehensive treatment project (945 million yuan), Ganjiang River in the central city of Fangcheng County, Comprehensive environmental control project of S103 line and PPP project of Longquan Park (819 million yuan), environmental treatment project of Liuhe Gully and Neihuang River in Neihuang County (761 million yuan), PPP project of Shangcai County Water Conservancy Bureau on comprehensive treatment of du Yigou in Shangcai County (853 million yuan) Gongyi ecological water system construction project (1.397 billion yuan), Dengfeng rural sewage treatment project (189 million yuan), etc., with a total investment of 11.19 billion yuan. With the acceleration of the environmental protection PPP project in Henan Province, as the only large state-owned environmental protection platform in the province, the company is expected to harvest more projects with the advantages of industrial chain and government resources. It is worth noting that as of 2018Q3, the company's PPP project construction period has not yet recognized revenue and profits, if confirmed, 2019 will be a new performance point.
The price-to-book ratio is only 0.89, which has long-term investment value.
In the early stage, due to market reasons, coupled with the double-kill valuation performance of the environmental protection sector, the stock price fell more. The company's current price-to-book ratio is only 0.89, which is much lower than that of state-owned enterprises in the same industry (Xingrong Environment 1.21, Hongcheng Water Industry 1.31, Chongqing Water 1.85). We think the company is undervalued. As of 2018Q3, the company's asset-liability ratio is only 23.74%, which is also lower than that of its peers (Xingrong Environment 43.31%, 61.68%, Chongqing Water 24.03%). The net cash flow of operating activities is 236 million yuan, the financial position is good, and the company has long-term investment value.
Profit forecast and investment rating: maintaining the "overweight" rating does not take into account the company's recognized income and profits during the construction period of the PPP project. At the same time, combined with the three quarterly reports, we raise the company's profit forecast. It is estimated that the company's 2018-2020 EPS will be 0.36,0.39,0.42 yuan respectively, and the corresponding stock price PE will be 15,13,12 times, maintaining the company's "overweight" rating.
Risk hints: the risk of the decline of sewage treatment charges, the risk that the expansion of the PPP project is not as expected, the risk of a substantial increase in accounts receivable, the risk of unrecognized income and profits during the construction of the PPP project, the risk of future acquisition and asset injection of the company, the risk that the project is not advanced as expected, and macroeconomic downside risks.
