I. Overview of events
Recently, we participated in the research of the company and communicated with the management about the future development strategy.
II. Analysis and judgment
The mode of "solid waste disposal + energy saving and environmental protection" continues to replicate in different places, and the connotation of solid waste disposal is constantly enriched.
In the early years, the company started by providing heating and sludge disposal services for Fuyang Paper Park. After listing in 2010, the company successively obtained five park sludge disposal cogeneration projects such as Quzhou Donggang and Changzhou Xingang through mergers and acquisitions, gradually formed a disposal capacity of 1000 tons per day for waste disposal and 7000 tons per day for sludge disposal, and successfully replicated the circular economy industrial model of "solid waste disposal + energy saving and environmental protection". In the future, in addition to continuously improving the heating scale of the park, the connotation of the company's solid waste disposal business will also expand from waste incineration and sludge disposal in the past to harmless and resource utilization of hazardous waste. At the same time, the company is in a leading position in the field of dioxin monitoring equipment and is expected to become a new growth point.
Sluggish demand and rising coal prices led to a decline in profits in 2018, and profits in the second half of the year are expected to be repaired quickly.
In 2018, under the influence of environmental protection inspectors and other factors, the company's customer steam demand declined, the superimposed coal-fired costs rose unsmoothly, and the small loan company failed to operate as expected, resulting in the company's full-year net profit of 125 million yuan, down 64% from the same period last year. According to Fuyang government planning, Samsung Thermal Power, which competes with the company in the second half of the year, will be shut down, and the company will undertake the remaining customers in its park, and the heat load is expected to increase greatly. at the same time, with the gradual increase in steam consumption and coal prices in Quzhou Donggang, Jiangsu Nantong, Liyang and other parks and coal prices gradually falling back to the green zone, the company's profits are expected to be repaired quickly in the second half of the year.
The proposed acquisition of Pului Energy continues to expand, and the large buyback shows the confidence of holding shares.
On August 16, the company announced that it plans to buy 85% of Perri Energy with its own capital of 850 million yuan, and integrate its cogeneration projects in Xingan, Xiaolan, Nanchang, Zhejiang, Taizhou, Zhejiang and other places. After the completion of the transaction, the company's industrial scale will double on the existing basis. In October 2018, the company disclosed the buyback plan, which intends to spend 2.4 billion yuan to buy back the company's shares at a price of no more than 7 yuan per share, demonstrating the company's confidence in future development.
III. Investment suggestions
It is optimistic that the company's "solid waste disposal + energy saving and environmental protection" circular economy industrial model will be replicated in different places. It is estimated that the company's EPS in 2019-2021 will be 0.36 EPS 0.43 max 0.52, corresponding to the current stock price PE 18max 15max 12x. The company forecasts PE 18x in 2019, which is below the 90% quantile since listing, and the average PE of 30x in the past three years has more room to repair, covering it for the first time and giving it a "recommended" rating.
Fourth, risk tips:
1, the progress of the project is not as expected; 2, M & An is not as expected; 3, the price of coal continues to rise.
