Events:
The company's recent announcement: 1) the company achieved revenue of 1.027 billion yuan in 2018, an increase of 5.19% over the same period last year; the net profit attributed to shareholders of listed companies was 414 million yuan, an increase of 28.53% over the same period last year. 2) Zhengzhou Public utility Group, a major shareholder, intends to load its 100% equity in the purification company into the listed company for a fee. 3) 2019Q1 achieved a revenue of 313 million yuan, an increase of 21.26% over the same period last year, and a net profit of 61.7589 million yuan belonging to shareholders of listed companies, an increase of 17.69% over the same period last year. In this regard, our comments are as follows:
Main points of investment:
2018 the growth rate of performance has increased, mainly due to the repurchase of Wangxinzhuang sewage treatment Plant.
In 2018, the company achieved revenue of 1.027 billion yuan, an increase of 5.19 percent over the same period last year, and realized a net profit of 414 million yuan belonging to shareholders of listed companies, an increase of 28.53 percent over the same period last year, an increase compared with 2017, mainly due to the government's repurchase of Wangxinzhuang sewage treatment plant. 323 million yuan of non-current assets disposal gains and losses were confirmed. The net profit after deduction was 313 million yuan, an increase of 8.96% over the same period last year, in line with expectations. From the perspective of business, the revenue of sewage treatment business is 871 million yuan (+ 5.90%), the annual sewage treatment capacity is 479.23 million tons, an increase of 16.22 million tons over the same period last year, and the utilization of reclaimed water is 32.03 million tons. The gross profit margin was 47.13%, an increase of 4.71pct over the same period last year; the revenue of the heating sales business was 116 million yuan (- 7.95%), and the gross profit margin was-4.01%, down 0.08pct from the same period last year. In terms of period expenses: the new sales expenses were 1.4388 million yuan, the management expenses were 84.455 million yuan, the year-on-year increase was 27.18%, and the financial cost was 50.2021 million yuan, an increase of 111.09% over the same period last year, mainly due to the increase in company loans. The R & D expenditure was 36.6777 million yuan, an increase of 1789.24% over the same period last year, mainly because the company increased the standard upgrading of sewage. Research and development investment in sludge disposal. The net cash flow of operating activities was 281 million yuan, down 20.78% from the same period last year.
With the continuous improvement of the industrial chain, sufficient orders and abundant funds, the company will have sufficient stamina for future development.
On the basis of urban sewage treatment and central heating, the company continues to expand the industrial chain. at present, it has been extended to reclaimed water reuse, biogas utilization, construction waste, village sewage, watershed treatment, sludge treatment, environmental protection equipment manufacturing, new energy manufacturing, landscaping and other fields, the business scope covers "big public, big environmental protection, big ecology" and other sectors, 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, the company has successively won the bid for Xinmi, gully, Xinyang Yanhe, civil rights, Fangcheng, Nei Huang, Shangcai, Gongyi environment, Dengfeng rural sewage, Zhongyuan district domestic waste sorting, Guizhou Duyun construction waste removal and other projects, the total investment of the project is more than 11.9 billion yuan, full orders on hand. As of 2019Q1, the company has 1.093 billion yuan in cash on hand, and the asset-liability ratio is only 30.10%. There is still a lot of room for financing, full orders and abundant funds, and the company has plenty of stamina for future development.
Selected state-owned enterprise reform two hundred enterprises, join hands with Henan assets, asset injection is expected to speed up
In August 2018, the company was included in the reform of state-owned enterprises by the State-owned assets Supervision and Administration Commission of the State Council. In October, the company and the controlling shareholder Public Utilities Group signed a strategic cooperation framework agreement with Henan assets. The three parties plan to cooperate in supporting the implementation of the "double hundred Enterprises" reform, promoting the solution of inter-industry competition, integration of business resources, and comprehensive financial services. Henan assets is a local asset management company controlled by Henan Investment Group, shouldering three major missions: resolving regional financial risks, serving the reform of state-owned enterprises, and supporting industrial transformation and upgrading. At the same time, Henan assets has bought company shares from the secondary market, and the equity ratio has increased from 4.30% of the 2018 annual report to 4.77% of 2019Q1. It is expected that the reform process and transformation and upgrading of state-owned enterprises will be accelerated. In April 2019, it was announced that the major shareholder Public Utilities Group would load its 100% stake in the purification company into the listed company for a fee, and had previously promised to complete the asset injection by the end of 2019. The purification company has Zhengzhou New District sewage treatment Plant (1 million tons / day) and Shuangqiao sewage treatment Plant (600,000 tons / day). If assets are injected, it will bring greater performance flexibility to the company. In addition, major shareholders have garbage power generation, tap water business and other assets, do not rule out the possibility of injection into listed companies in the future. As the only state-owned environmental protection platform in Henan Province, the reform of state-owned enterprises is worth looking forward to.
The price-to-book ratio is only 1.04, 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 1.04, which is much lower than that of state-owned enterprises in the same industry (Xingrong Environment 1.34, Hongcheng Water Industry 1.39, Chongqing Water 1.88). We think the company is undervalued. As of 2019Q1, the company's asset-liability ratio is only 30.10%, which is also lower than that of its peers (Xingrong Environment 47.36%, Hongcheng Water Industry 62.36%, Chongqing Water Industry 27.25%). The net cash flow of operating activities is 226 million yuan, the financial position is good, and the company has long-term investment value.
Profit forecast and investment rating: maintain the company's "overweight" rating. Regardless of the impact of asset injection on the company's performance for the time being, it is estimated that the company's 2019-2021EPS is 0.36,0.39,0.42 yuan respectively, and the corresponding share price PE is 18,16,15 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 that the construction of the PPP project is lower than expected, the risk of future acquisition and asset injection of the company, the risk that the project is not as expected, and the risk of macroeconomic downside.