Incidents:
Recently, the company has issued a number of announcements one after another.
(1) The Company and Zhongshan Public Works Co., Ltd., a wholly-owned subsidiary, jointly invested 20 million yuan to establish Zhongshan Public Water Environmental Treatment Co., Ltd. to carry out sewage network and pumping station operation service business.
(2) The consortium formed by the company and China Airlines Environmental won the bid for the “PPP Project for Rural Domestic Sewage Treatment Facilities in Four Towns Including Huicheng Street, Xinhui District”, with a total investment of 298 million yuan, and a total annual service fee price of 29.036 million yuan. The project period is 30 years, including the design, construction, operation and maintenance of 94 new rural sewage treatment facilities and supporting sewage collection networks; operation and maintenance of rural sewage treatment facilities and supporting sewage collection networks in the four towns.
(3) In December 2018, Mingcheng Technology, a holding subsidiary of the company, held a board meeting to deliberate and pass the “Proposal on Application for Termination of Listing of Company Shares in the National Small and Medium Enterprises Share Transfer System”.
Comments:
Based on the original water supply and sewage projects, we will expand the water environment treatment business, focusing on the village and town sewage treatment market. Zhongshan Public Works is the only state-owned listed company in Zhongshan. The company's traditional business is centered on water services. Recently, the company set up a water environment treatment subsidiary and won a bid for village and town sewage PPP projects, which indicates that the company's water environment treatment business focusing on village and town sewage treatment is expanding smoothly. Currently, the company has a water supply scale of about 2.38 million tons and a sewage treatment scale of about 610,000 tons. In the future, the water supply business is expected to have a natural increase of 3%-5% per year, and there is also a possibility of increasing profits by increasing water prices; the sewage business is expected to achieve an annual increase of about 10%.
Mingcheng Technology, a sanitation subsidiary, was delisted from the Third Board, and competition issues in the industry were resolved. In the future, it will vigorously promote the expansion of sanitation projects. In July 2018, the company acquired a 95.5% controlling interest in Mingcheng Technology, plans to develop sanitation business, and form a business collaboration with the company's Tianyi Energy waste incineration business in the solid waste field. However, as a third-tier enterprise, Mingcheng Technology still has competition issues with listed companies, which affects the company's vigorous expansion of sanitation projects in other regions. After Mingcheng Technology is delisted this time, the problem of competition in the industry will be solved, and the company will also quickly integrate its own resources and accelerate the expansion of sanitation projects.
Market capitalization is broken, stock prices are at a safe margin, and the environmental protection business will grow at an accelerated pace in the future. Currently, the direction of the main environmental protection business is becoming increasingly clear. It will shift from a utility platform to an environmental protection platform. In the future, sufficient funds will be used to support the expansion of the main environmental protection business. Currently, the total market value of the company is 10.32 billion yuan. After deducting the A shares held by Guangfa Securities account for 9.01% of the total share capital, the share value is about 8.5 billion yuan and H shares account for 1.32% of the total share capital, and the share value is about 900 million yuan. The remaining environmental utility business corresponds to a market value of only 190 million yuan, while the net assets of its water projects are already 1.88 billion yuan. In addition, 60% of the shares of China-Hong Kong Passenger Transport correspond to 250 million yuan of net assets, market leased land value, Tianyi Energy and sanitation projects, etc. Regardless of GF Securities's revenue, we expect the company's other businesses to achieve net profit of 220 million yuan and 290 million yuan respectively in 2018-2019. After adding GF Securities's revenue, the overall net profit attributable to GF Securities is about 760 million yuan, 940 million yuan. The current valuation has a safe margin. In the future, new business developments such as Tianyi Energy project commissioning, water price increases, sanitation, and village sewage treatment will bring flexibility to environmental protection business growth, giving it a “Prudent Recommendation - A” rating.
Risk warning: The impact of overall municipal fluctuations on the market value and business of GF Securities; new business development is slow.