Introduction to this report:
As a utility platform under the Zhongshan State-owned Assets Administration Commission, the company's business involves water supply and drainage, waste incineration, sanitation services, and passenger transportation. At the same time, the company holds 9.01% of GF Securities, which is an important influencing factor in performance and market capitalization fluctuations.
Key points of investment:
Investment advice: EPS is forecast to be 0.71 yuan, 0.80 yuan and 0.88 yuan respectively in 2019-2021. Considering that the company holds 9.01% of GF Securities's shares and accounts for a relatively high performance, its profit forecast is consistent with Wind's expectations, and the performance segment is valued. Referring to the average valuation level of the industry, the main business segment gave 15 times more dynamic PE in 2019, superimposed 9.01% of GF Securities's market value on that day. The target price is 9.32 yuan. First coverage, giving a careful increase in holdings rating.
Utility platform under the Zhongshan State-owned Assets Administration Commission: The controlling shareholder Zhonghui Investment is a wholly state-owned enterprise in Zhongshan. In 2014, Fosun Hi-Tech was introduced as a strategic investor in the form of an equity transfer. Currently, the shareholding ratio of the two is 47.98% and 12.35% respectively, ranking first and second largest shareholders.
A comprehensive territorial utility platform rooted in Zhongshan: The company's main business includes water operations, environmental water, solid waste treatment, sanitation services, engineering construction, market operations, port passenger transportation, financial services and equity investment. Currently, it has a water supply capacity of 2.38 million tons/day, a sewage treatment capacity of 640,000 tons/day, and a waste incineration capacity of 910 tons/day. It has 32 farmers' markets, holds 60% of the shares of China-Hong Kong Passenger Transport, and is engaged in passenger waterway transportation services on the Zhongshan to Hong Kong and Zhongshan to Shenzhen routes. At the same time, the company holds 9.01% of GF Securities, and the investment income contributed in the past three years accounted for 65% to 84% of the company's total performance, which is the main influencing factor in the company's performance fluctuations.
The elasticity of the main business comes from water extraction prices and the expansion of waste incineration production capacity: Currently, the price of terminal water in Zhongshan is significantly lower than the area surrounding the Pearl River Delta. Although Guangdong Province raised water resources fees in 2016, the company's water prices have not been adjusted since 2014, and there are expectations that water prices will rise in the future. The Tianyi Energy Phase III waste incineration project has entered the construction period, with a production capacity of 1,200 tons/day and a treatment fee of 91 yuan/ton. Performance will increase after production capacity is put into operation.
Risk warning: The impact of fluctuations in A-share trading activity will be transmitted to the company's performance through changes in GF Securities's performance.