Overview of events:
On the evening of April 19, 2020, the company announced that it intended to change the actual controller to China Energy Saving Group through equity transfer agreement and non-public offering.
Analysis and judgment:
The first ecological restoration company on the gem intends to change the actual controller to solve the bottleneck of development.
Founded in 2001, the company is a comprehensive private enterprise integrating planning, design, financing, construction, operation and other industrial chain links in the construction of the ecological environment. Listed on the gem in 2011, it is the first A-share company with ecological restoration as its main business. After the company went public, the company achieved the first round of rapid growth in the frenzied period of non-standard borrowing of local government financing vehicles for infrastructure construction. But soon, due to the hidden debt risk of the local platform company, the company judged the hour and sized up the situation in 2013 to end the expansion strategy and control the relevant risks in time. In 2015, the Ministry of Finance and the National Development and Reform Commission began to promote PPP model financing for infrastructure construction, the company seized the opportunity to obtain the second round of rapid development, and established the two main businesses of ecological environmental protection and ecological landscape. However, since the middle of 2018, the central government has issued documents to standardize the development of PPP projects. The financing environment shrank in 2017-2019, and the company encountered funding bottlenecks. In 2018, the company introduced Shenzhen Investment Holdings Co., Ltd., a wholly owned subsidiary of Shenzhen SASAC, an important strategic shareholder. On April 19, 2020, the company announced that it planned to change the actual controller to China Energy Saving and Environmental Protection Group Co., Ltd. In 2018, China Energy Saving was designated by the central government as the main platform for pollution control in the Yangtze River Economic Belt. The introduction of real controllers and Shenzhen state-owned assets will not only solve the capital bottleneck for the company, but also bring more coordinated business development.
The development history of the company is a cycle history of Chinese capital construction.
The company went public in 2011, coinciding with the frenzied period of non-standard borrowing of local government financing vehicles for infrastructure construction, and the company achieved its first round of rapid growth. But soon due to the hidden debt risk problem of local platform companies, in December 2012, the Ministry of Finance, together with the Development and Reform Commission, the people's Bank of China and the Banking Regulatory Commission, jointly issued the notice on stopping the illegal financing behavior of local governments. The company judged the hour and sized up the situation in 2013 to end the expansion strategy and control the relevant risks in a timely manner. From 2014 to 2015, the world economic growth is low, trade growth is slow, and China's economic growth is also facing greater pressure. The Ministry of Finance and the National Development and Reform Commission vigorously promote the PPP model for infrastructure construction and public welfare projects. From 2015 to 2017, the company has won a number of PPP projects with outstanding performance. Of these, the operating income in 2016 and 2017 was 45.73 billion yuan, up 75.00% and 79.04% respectively over the same period last year, and the growth rate was more than 75%. At the same time, the performance of home net profit was also outstanding, with 522,757 million yuan in 2016 and 2017, an increase of 70.59% and 45.02% respectively over the same period last year. By 2018, due to the financing tightening of private enterprises and PPP projects are no longer supported by the policy, corporate financing costs have soared, performance has declined, and the return net profit has declined off a cliff. The company's revenue in 2018 and the first three quarters of 2019 was 77.49 / 4.527 billion yuan, down 5.36% and 28.08%, respectively, compared with the same period last year; and the net profit of home was 304 million yuan, down 59.81% and 94.31% respectively. At the same time, due to the obvious increase in management expenses due to expansion, and because private enterprises have encountered the problem of expensive financing in recent years, the financial expenses of listed companies have soared, affecting the level of net profit of the company.
At the beginning of a new cycle, special debt will carry the banner of capital construction.
From 2014 to 2015, the Ministry of Finance and the National Development and Reform Commission jointly launched the infrastructure PPP model, which has high hopes in terms of stable growth, stable employment and making up for deficiencies, but from the perspective of implementation effect, by the end of February 2020, no project has entered the transfer stage. From 2016 to 2017, the average growth rate of infrastructure investment (excluding electricity) was 18.20%, and the average annual increase in infrastructure investment was 2 trillion yuan. it is estimated that the average annual start-up investment of PPP projects is 1.07 trillion, which shows that the marginal contribution rate of PPP projects to investment increment is about 50%, and the other half still comes from various non-standard illegal financing (such as government procurement services, etc.). It does not achieve the goal of the central government to strictly control the illegal borrowing of local governments to increase the debt risk, and the calculation of the hidden debt scale of local governments in the market is mostly concentrated in the case of 30-40 trillion. The global COVID-19 epidemic in 2020 has no less impact on the global economy than the 2008 financial crisis. in this context, special bonds will become an important active fiscal policy tool to help infrastructure make up for deficiencies and play a cornerstone role in stabilizing investment, employment and growth. As of April 17, 2020, the cumulative amount of ecological and environmental protection special debts has reached 180.861 billion yuan, accounting for 16.10% of all new special debts. The amount of special debt for ecological and environmental protection completed in 2020 is more than three times that of 53.124 billion yuan completed in 2019, with a significant increase.
Investment suggestion
The company landed on the gem in 2011 as the first company whose main business is ecological restoration. After two cycles of infrastructure construction, the company has accumulated a wealth of project experience. The energy saving of the actual controller proposed to be changed will be designated by the central government as the main platform for pollution control in the Yangtze River Economic Belt in 2018. The coordination with the actual controller in the future business will bring the company more high quality orders. The financial cost of the company as of 2019Q3 is 468 million, and it is expected to be 600-700 million for the whole year. Previously, the borrowing costs of the company's banks are very high, and the actual controller is changed into low-interest loans, which is expected to save 200-300 million yuan annually. We are optimistic about the company's future development prospects. according to the bet profits between the company and China Energy Saving, it is estimated that the company's operating income from 2019 to 2021 will be 51.31max 5345,6323 million yuan respectively, an increase of-33.8%, 4.2% and 18.3% respectively over the same period last year; and the net profit of homing mother will be-888,340 million yuan, an increase of-391.9% 109.9% and 288.4% respectively over the same period last year. EPS is-0.38 shock 0.04 pound 0.14 yuan per share, corresponding to PE is-8-85-22 times, the first time coverage, given the "overweight" rating.
Risk hint
1) the non-public offering is terminated, the liquidity has not been effectively replenished, and the financial expenses have further increased.
2) the central government does not support the cancellation of active fiscal policies such as infrastructure investment and special debt.
3) there has been a major change in environmental protection policy, which is no longer the key support direction of the state.
4) the accounts receivable of the company can not be collected in time, there is a shortage of short-term cash flow, and the promotion of the project is blocked.
