1. The company's revenue structure and profit level: The four major sectors are developing together, and gross margin and expense ratios fluctuate greatly.
The company's main business includes four major segments: industrial water treatment, municipal water treatment, solid waste and energy business. Specifically, the industrial water treatment sector mainly includes seawater desalination, air flotation equipment/ceramic membranes and water treatment equipment sales and industrial water treatment; the municipal water treatment sector mainly includes sponge cities and municipal engineering; and the energy business is mainly natural gas projects. The company's revenue for the first three quarters of '18 was 872 million yuan, a year-on-year decrease of 14.7%, and the net profit of its mother was 157 million yuan, a year-on-year decrease of 23.4%. As of the first half of 2018, the company's revenue from natural gas, sponge city, municipal engineering, industrial water treatment, water treatment equipment sales, and seawater desalination accounted for 37%, 18.4%, 17.3%, 12.5%, 11.0%, and 1.7%, respectively.
In terms of the company's comprehensive gross margin, it continued to rise rapidly from 27.4% in 2015 to 44.1% in '17, but fell sharply to 33.6% in the first half of '18. The gross margin level of the company's sponge city, seawater desalination, natural gas business, and industrial water business in the first half of '18 all declined to varying degrees compared to '17. The gross margin of water treatment equipment has continued to increase since 15 years. After falling to a low of 2.1% in '17, the gross margin of municipal engineering returned to the normal level of previous years in the first half of '18.
In terms of the company's expense ratio: The share of the three expenses in revenue rose rapidly from 12.1% and 14.5% in 15-20 to 28.8% in '17. Although Q3 of '18 declined from '17, it was still at a high level of 25.2%. Among them, the cost ratio of sales expenses, management expenses, and financial expenses all rose sharply in 17. In the first three quarters of '18, the sales expense ratio and management expense ratio declined, but the financial expense ratio continued to rise to a high level of 6.23%. High expense rates eroded the company's performance, and the company's expense control needed to be further strengthened.
2. Municipal water treatment sector: There are plenty of on-hand orders, so we need to pay attention to the financing implementation and project progress of key projects.
The company's municipal water treatment segment mainly includes two major businesses: municipal sewage treatment and sponge city. By the end of March '18, the company had completed 3 BOT projects in operation, with a total processing capacity of 33,000 tons/day. From January to March '18, the company completed 1,074 million tons of water treatment, and the operating revenue of the BOT project was 1,212 million yuan, which contributed less to the revenue. The company's main projects under construction include the Qinyang project (contract amount of 1.16 billion yuan), the Caoxian project (contract amount of 1.29 billion yuan), the Tai'an project (contract amount of 1.28 billion yuan), the Liupanshui project (contract amount of 1.68 billion yuan, close to completion), the Jinzhou Jinling Reservoir project (contract amount of 340 million yuan). The main proposed projects are the Yiliang County One Plant and Three Network Project (contract amount of 130 million yuan). If these projects can be successfully implemented, they will have a positive impact on the company's future performance. We need to pay attention to the future financing of key projects. and projects progress.
3. Industrial water treatment sector: Industrial water treatment and equipment sales have accumulated advanced technology through mergers and acquisitions, and the business is progressing steadily. Subsequent domestic market expansion is worth looking forward to; seawater desalination needs to focus on the progress of proposed projects.
1. Seawater desalination: There are many projects in the pipeline, and we are focusing on future progress. The company began entering the seawater desalination field in 2015. Currently, there are no completed projects. The main projects under construction are the 100,000 tons/day seawater desalination project in the Bohai New Area of Cangzhou. By the end of June 18, the uncompleted investment amount of the Cangzhou project was 367 million yuan, and the implementation progress was 55.8%. By the end of March 18, the company's main proposed projects were the Yingkou seawater desalination project (planned total investment of 8.3 billion yuan, 100,000 tons/day) and the Mankazakh project (the investment amount was about 100 million US dollars, the scale of the project was 50,000 tons/day). big If subsequent progress goes smoothly, it will have a positive impact on the company's performance.
2. Sales of air flotation equipment, ceramic membranes and water treatment equipment: Actively developing the domestic market is expected to bring performance flexibility.
The company carried out related business through the acquisition of overseas companies with leading air flotation system technology and ultrafiltration ceramic membrane technology, such as Austrian KWI and German iTN. The company's revenue from this business in the 16th, 17th, and first half of '18 was 0.73, 0.96, and 69 million yuan, respectively, and achieved relatively steady growth. The company is currently actively promoting air flotation technology and ceramic membrane technology in the domestic municipal and industrial sewage treatment markets. Compared with traditional coagulation processes, although the initial investment in air flotation technology is relatively high, the later operating costs are low and the area is small. As domestic sewage treatment plants are upgraded, the company's air flotation technology business is expected to benefit from it; compared to organic films, ceramic films have significant advantages such as higher temperature resistance, greater anti-pollution ability, wider applicability, and easy cleaning; iTN has 18 invention patents, 69 utility model patents, a competitive advantage, and has been successfully used in the field of nano-coated ceramic plate ultrafiltration membrane technology, and has been successfully used in the field of nano-coated ceramic plate ultrafiltration membrane technology, with obvious competitive advantages, and has been successfully used in the field of nano-coated ceramic plate ultrafiltration membrane technology. Effluents Benchmark projects such as reuse and advanced treatment of extracted water from Sinopec's Puguang gas field are expected to achieve rapid development in related domestic water treatment markets in the future, bringing flexibility to the company's performance.
3. Industrial water treatment sector: KWI's company earns revenue fast, and the acquisition has entered the domestic industrial water treatment market. The company's industrial water treatment revenue mainly comes from the combined income from overseas industrial water treatment projects of the US SWT Company acquired by the company in May 2017. In '17 and the first half of '18, SWT achieved industrial water treatment revenue of 53 million yuan and 79 million yuan, with losses of 1.688 million yuan and 327,000 yuan respectively. Revenue increased and losses were reduced. The company recently began developing the domestic industrial water treatment market. The company announced in October that it intends to acquire 100% of the shares of Pohu Environmental, the BOT operator of the Jiangxi Provincial Government to build a sewage treatment facility project in the Poyang Lake Economic Zone Industrial Park. Pohu Environmental Protection has already obtained franchises for eight sewage treatment plants. Recently, the daily treatment capacity scale reached about 120,000 tons, and the long-term design daily treatment capacity reached 400,000 tons. It is foreseeable that the completion of this acquisition will effectively enhance the company's performance and bring stable cash flow.
4. Solid waste and hazardous waste treatment business: The proposed project is large and will contribute significantly to performance after completion. Project progress needs to be focused on. The company's solid waste business segment mainly includes sludge drying and hazardous waste disposal. The solid waste projects currently in operation include the Qingpu Sludge Drying Plant and the Penglai Chemical hazardous waste incineration project, which have contributed little to the company's performance. The company accelerated the expansion of the solid waste sector in 18 years. The proposed and preparation projects mainly include the first phase of the solid waste disposal center project in Shikou Town, Dongying City (total investment is estimated at 190 million yuan, total project scale of 200,000 tons/year), the Wudi County Hazardous Waste Disposal Center project (estimated total investment of 500 million yuan, construction scale of 45,000 tons/year), and the Hezhen Sludge Dry Incineration Project (estimated total investment of 120 million yuan, treatment of 400 tons of sludge per day). It is expected that it will contribute significantly to the company's long-term performance after putting it into operation, considering that the project's implementation is still viable. In addition, the investment amounts for the three proposed solid waste projects are all relatively large, putting a lot of pressure on the company's capital. Future project implementation and capital implementation also need to be focused on.
5. Energy business: The SPC project progressed rapidly and contributed significantly to revenue. The company's energy sector is mainly in the natural gas business. The company's business segment started again in 2017, and revenue growth is fast. The main project under construction is an overseas SPC gas project. The project undertaking type is BOT. The project operation period is 3 years. The gas supply capacity of the project is 2 million m3/day, and the exhibition is mainly in the Middle East region. The total investment is expected to be 490 million yuan. As of the first half of 2018, the project has invested a total of 363 million yuan, and the implementation progress is 74.14%, indicating that the project is progressing rapidly and its contribution to revenue is obvious. As of the end of March 2018, the company's energy sector had 3 proposed projects, all under the BOO model, with a total project investment of 27 million yuan. The subsequent growth of the company's business depends on the continuous expansion of new projects in the future.
6. Summary: Overall, the company has shown remarkable expansion performance in all major business segments. Currently, there are many orders and proposed projects on a large scale. If successfully implemented, it will have a positive impact on the company's future performance. The company has great potential for long-term growth. The company has great potential for long-term growth. We need to pay attention to the implementation and progress of key projects and the ability to continuously develop the market. The company is currently actively promoting ceramic membrane technology in the domestic sewage treatment market. Market development is uncertain, and compared with traditional organic membranes, ceramic membranes have disadvantages such as high initial cost and slight lack of separation accuracy. However, in addition, they also have irreplaceable advantages such as long life and wide applicability. Currently, production costs are also decreasing. The future market is expected to expand at an accelerated pace, which is expected to bring greater flexibility to the company's performance. The company's performance for 18-20 is estimated to be 220, 250, 30 million yuan, and the corresponding PE valuation for 19-20 is 14.8 and 12.1 times, maintaining the “prudent recommendation” rating.
7. Risk warning: the risk of project progress falling short of expectations, market expansion falling short of expectations, risk of accounts receivable repayment, uncertainty risks such as the political nature of overseas projects, the risk of financial expenses being too high, and the risk that the majority shareholders' pledge ratio is high.