Core ideas:
Benefit from sales growth in the main business + Zhongxu merge table, full-year results are expected to increase by 95% Mi 125% the company forecasts to achieve a net profit of RMB 2.21-255 million in 2018, an increase of 95% Mi over the same period last year. The change in performance was mainly due to the rapid growth in sales of water treatment agent products in the company's main business. In addition, for the whole year of 2018, Zhongxu Construction promised a performance commitment of RMB 0.96 billion in 2018 and a net profit of RMB 40 million in the first half of 2018.
With the extension of the industrial chain with water treatment agent as the core, there are abundant orders for engineering and operation projects. In recent years, the company has acquired the same environment and Ande technology one after another, forming a business system of "production and marketing of water treatment agent + project construction operation + environmental protection equipment sales". In 2017, it acquired 55% stake in Zhongxu Construction and laid out PPP for environmental protection. As of mid-2018, the company reported 9 engineering orders at the end of the period, with unrecognized income of 103 million yuan, 9 orders in the franchise operation period, and operating income of 29.04 million yuan. In the second half of 2018, Zhongxu and Tongsheng successively won the bid for the infrastructure PPP project of the Green Building Industrial Park in Huaishang District, Bengbu City, Anhui Province (613 million yuan), and the Zhanheyuan Comprehensive Management Project of Baofeng County (210 million). According to the disclosure of the company, the order for the same living environment reached 1.4 billion yuan at the end of 2018.
The company steadily promoted the 490 million convertible bond issuance plan, and the company issued a 490 million convertible bond financing plan in May 2018, of which 430 million was used to invest in the water treatment agent expansion project with an annual output of 180000 tons. According to the company announcement, the order amount related to the single agent of water treatment agent increased from 470 million yuan to 646 million yuan from 2015 to 2018, with a compound growth rate of 16.66%. At the end of 2018, the company has a total production capacity of 90,000 tons, and the expansion of production will help to accelerate the release of orders.
The extension of the industrial chain enhances the comprehensive competitiveness, the high performance growth is certain, and the "buy" rating is given without considering the issuance of convertible bonds for the time being. we expect the company's EPS to be 1.13,1.39,1.69 yuan per share respectively from 2018 to 2020, and 11.7,9.5,7.8 times the corresponding PE according to the latest closing price. In terms of valuation, the company's core business: water treatment agent belongs to fine chemicals, industry PE is 10-15 times; Tongsheng + Zhongxu is environmental protection project, bid A Guozhen environmental protection (both are sewage treatment direction projects) give this plate 19 years 12 times PE In view of the fact that the company is the leader of water treatment agent and the production of new capacity is expected in the future, the order for environmental protection projects can be increased by 12 times PE as a whole, with a forecast net profit of 304 million yuan in 2019 and a "buy" rating corresponding to a reasonable value of 16.72 yuan per share.
Risk tips: new orders and landing conditions are not up to expectations, convertible bond issuance process is not as expected, financing costs have risen sharply, and downstream demand for water treatment agents has weakened.