Summary of investment
China's leading provider of integrated water environmental solutions, and the project supplier Fufu Co., Ltd. is China's leading provider of comprehensive water environmental services, covering sewage treatment, water environmental treatment, combined utilization of water resources and protection of aquatic ecology. According to Frost Sullivan, the company is the largest central government enterprise engaged in sewage treatment services in China. According to its treatment capacity in 2017, the company is the third largest sewage treatment service provider in the Bohai Sea economic circle. According to the market share in 2017, the company is one of the top 10 providers of water resources solutions in China, and according to the market share, it is one of the top three companies in China's municipal sewage treatment market and water environment treatment market.
From 2016 to 2018, the company's revenue increased from 2.494 billion Hong Kong dollars to 4.768 billion Hong Kong dollars, with a CAGR of 38.3 percent. The company's profit increased from 373 million Hong Kong dollars to 737 million Hong Kong dollars, with a CAGR of 40.6 percent. According to Frost & Sullivan, in 2015-2017, the growth rate of companies with similar water treatment solutions listed in Hong Kong shares was one of the leading enterprises.
The market concentration of China Water Administration Bank is moderately low, and the integrated space is huge.
The growth of urbanization in China has created a long-term demand for water and sewage treatment services. Since 2013, domestic sewage discharge has continued to increase, from 48.5 billion tons in 2013 to 57.1 billion tons in 2017, with a combined annual growth rate of 4.2 percent. By the end of 2016, a total of 3552 sewage treatment plants had been built in cities and towns in China, with a sewage treatment capacity of about 190 million cubic meters per day, an increase of 4-6 percent in recent years. In terms of water supply, by the end of 2016, the popularization rate of urban water use has reached 98.4%, and the popularization rate of urban water use has also reached 90.5%. The construction of water supply facilities has been in progress in recent years, and the total amount of urban water supply in China has remained basically stable, with a growth rate of 1 percent and 3 percent. According to the statistics of the State Statistics Bureau, from 2013 to 2017, China's urban and rural population increased from 731.1 to 813.5, with a complex annual growth rate of 2.7 percent. In the same period, China's urbanization rate increased by 4.8% from 53.7% to 58.5%. China's urban population is expected to reach 934.5 million by 2022, and the corresponding urbanization rate may reach 65.8%.
Accordingly, according to the BMI Research forecast, China's demand for sewage treatment will reach 88 billion cubic meters by 2025.
Taken together, China's sewage treatment market has a strong demand but insufficient supply, and there are still many long-term opportunities for sewage treatment services in the future.
According to the "Everbright" brand, the company's controlling stock, Everbright International, is the market leader in China's environmental protection industry. China Guangda Collection, the parent company of Everbright International, is a large integrated enterprise ranking among the top 500 companies in the world, with a brand image that is well-received. In China, it has diversified business combinations involving banking, vouchers, insurance, funds, financial leasing and practice, as well as years of successful experience, covering the whole country. As a member company of China Everbright, the company benefits from the license, service network and past network of China Optical and Everbright International, and can develop in the environmental protection service industry. During the business exhibition, the company paid special attention to the areas where the China Everbright brand was well received by local governments, and in areas where the company's business had not yet entered and where the economy was developing well and the per capita income was high. The company believes that through cooperation with other member companies of China Everbright Group, it can provide a series of environmental protection services to local governments and customers, so that the company can have the same effect with other member companies of China Everbright Group.
Be granted the "promotion" level, with a target of HK $2.64.
We use the residual income valuation model, assuming a return rate of 6.01% and an anti-decline factor of 0.20, we get a target of HKD 2.64, which corresponds to an increase of + 49.79% for FY19/FY20/FY21 9.42x/8.18x/7.72x PE (HKD1.76 as of September20, 2019).