This report is read as follows:
As the water operation platform of Zhengzhou Municipal Government, the company has focused on solving the problem of competition with major shareholders through asset injection in the past two years, bringing rapid production capacity expansion and releasing performance flexibility.
Main points of investment:
Investment suggestion: it is predicted that the EPS from 2019 to 2021 will be 0.37,0.41 and 0.56 yuan respectively. With reference to the average valuation level of the industry, and considering the company's high capacity expansion flexibility, the company is given 20 times dynamic PE in 2019, with a target price of 7.4 yuan. For the first time, it was given a rating of "prudent overweight".
Zhengzhou municipal government's only public utility platform: the company's controlling shareholder Zhengzhou public utility group holds 68.73%, and the actual controller, Zhengzhou SASAC, holds a total of 71.76% through public utility group and Zhengzhou investment. In 2015, the company began to solve the problem of peer competition with controlling shareholders, restore financing capacity, dispose of inefficient assets, and release growth momentum. ① sold the West side heating assets in 2016 and injected into the water assets of major shareholders. ② sold back the franchise and assets of Wangxinzhuang sewage treatment plant with low capacity utilization to Zhengzhou City Administration Bureau in 2018. ③ plans to inject all the remaining water assets of its controlling shareholders into listed companies in 2019 to thoroughly solve the inter-industry competition.
Expand business areas and release growth momentum: since 2017, the company has actively undertaken environmental protection engineering business in various parts of Henan Province, including river regulation PPP, pipe network BOT, construction waste disposal and sludge disposal commissioned operation. Relying on the continuous accumulation of cash in the water business, we will pry the engineering business sector with greater performance flexibility.
The utility group promised to complete the asset injection of the water purification company by the end of 2019: the water purification company of the controlling shareholder, the water purification company of the utility group, currently holds Zhengzhou New area and Shuangqiao sewage treatment plants, forming industry competition with listed companies. The utility group promised to inject into listed companies after the completion of the construction of the two water plants, and thoroughly solve the problem of inter-industry competition by the end of 2019. The proposed water injection plant already has a capacity of 850,000 tons per day and a long-term capacity of 1.6 million tons per day. Superposition has already started other water projects. The company's current water capacity expansion flexibility is more than 100%, which is expected to be gradually realized in the next two years.
Risk hint: there is uncertainty about the progress of asset injection. Xinyang project 500 million yuan integrity payment in place time is uncertain, or will continue to form bad debts to erode profits.
