Main points of investment:
The company's annual report was disclosed in the evening of March 14. In 2016, the company achieved operating income of 749 million yuan, an increase of 23.91 percent over the same period last year, and the net profit belonging to shareholders of listed companies was 47.3958 million yuan, down 10.39 percent from the same period last year. Fully diluted earnings per share is 0.17 yuan, and the dividend plan is 0.2 yuan for every 10 shares.
The performance was in line with expectations, the revenue increased steadily and the financial expenses increased. The company's 2016 homing net profit decreased by 10.39% compared with the same period last year. The operating income was 749 million yuan, an increase of 23.91% over the same period last year. Of this total, the revenue from sewage treatment projects was 524 million yuan, up 20.49 percent from the same period last year; the sales revenue from membrane products was 178 million yuan, up 15.42 percent from the same period last year; and the revenue from sewage treatment services was 43.2366 million yuan, up 228.82 percent from the same period last year. The company's three fees have all gone up, and the financial expenses have increased more. Sales expenses increased by 9.75% to 26.4926 million yuan over the same period last year, financial expenses increased by 53.08% to 26.4767 million yuan, and management expenses increased by 12.86% to 122 million yuan. The increase in financial expenses is mainly due to the increase in interest expenses on bank loans due to the increase in short-term borrowing. The increase in management costs is mainly due to the increase in R & D costs.
The acquisition of high-quality assets accelerates business expansion, and the landing of orders contributes to the expansion of the PPP field. In September 2016, the company announced that it intends to buy 100% stake in Jiangsu Kaimi at a price of 1.01 billion yuan, including 750 million yuan for shares and 260 million yuan for cash, and 420 million yuan for Jinqiao Shuike, including 360 million yuan for shares and 60 million yuan for cash. Jiangsu Kaimi and Jinqiao Water Science promised that the net profit of deducting non-return in 2016, 2017 and 2018 would be no less than 0.6,0.75, 93 million yuan and 0.25,0.325 and 42 million yuan, respectively. At the same time, it is proposed to issue no more than 2483.57 million shares to four institutions, including Hi-tech Investment, Hebei Construction Water Affairs, Jianxin Natural and Jingdezhen Runxin Changnan, to raise supporting funds, and the total amount of supporting funds to be raised is expected to be no more than 378 million yuan. This acquisition will help to improve the profitability of the company, enhance the ability to resist risks and the ability of sustainable development. The total number of orders signed by the company in 2016 totaled 2.123 billion yuan, 2.85 times the 2016 revenue, of which 849 million were PPP orders. Relying on the leading edge of membrane technology and the synergy of water governance brought by this merger, the company's ability to take orders in the field of PPP will continue to be enhanced.
Profit forecast and valuation. Only considering the growth of the company's original main business, it is estimated that the net profit attributable to the company in 2017 and 2018 is 0.60 yuan and 77 million yuan respectively, and the corresponding EPS is 0.22 yuan and 0.28 yuan respectively. Considering the annual exam profit of Jiangsu Cami and Jinqiao Water Science, corresponding to the net profit of 1.67 yuan in 2017 and 213 million yuan in 2018, it is expected that the total share capital of the company will increase to 349 million shares after the consideration is paid, and the corresponding diluted EPS will be 0.48,0.61 yuan respectively. Taking into account the rapid growth of the expected performance brought about by the business collaboration after the merger and acquisition, it is given a valuation of 45 times PE in 2017, corresponding to the target price of 21.60 yuan.
Risk hint. (1) M & An integration falls short of expectations, (2) market competition intensifies and corporate gross profit margin decreases.
(3) the performance commitment falls short of expectations.
