1Q20 homing net profit was downgraded to "overweight" rating from + 30% year on year. According to the company's annual report and quarterly report, the company realized revenue / homing net profit / deducted non-homing net profit in 19 years. The revenue / homing net profit / deduction of non-homing net profit in 19 years was 0.40 billion, + 41%, + 41%, 49% and 2%, respectively, and the homing net profit was lower than expected (the previous forecast was 80 million). The decline in homing net profit was mainly due to the failure of private equity products to pay on time, with a total impairment of 3400 million. 1Q20 revenue / return net profit is 30% higher than that of the same period last year, mainly affected by the epidemic, and the net profit increases rapidly. The EPS for 20-21 years is adjusted to 1.68x1.89 yuan (the previous value is 1.41pound 1.83), and the 22-year EPS2.28 yuan is introduced to give the company 20-year 45-47x EPS2.28 E, corresponding to the target price of 75.82-79.19 yuan, which is reduced to "increasing holdings".

The revenue in 2019 was + 41% compared with the same period last year, and the civil / petrochemical / steel / paper business all increased over the past 19 years, mainly due to the new Stora Enso Paper / Tianjin Xiqing District River Regulation / Chengdu Wanda Water Park project, Leting EPC entered the full construction stage, and the equipment / project revenue is confirmed to have increased significantly. From the perspective of downstream industry, the revenue of civil / petrochemical / automobile / steel / paper industry compared with the same period last year, + 27%, 23%, 136%, 204%, 136%, 204%,-7.7/+7.4/-13.7/-4.1/+2.5pct, respectively. The sharp decline in automobile revenue is due to the reduction of production by Volkswagen-related car factories, which leads to a reduction in project income, and the superimposed environmental protection has led to an increase in hazardous waste disposal costs. Plate gross profit margin has declined significantly. Civil sector Chengdu Wanda Water Park project gross profit margin is low, driving up the overall cost; steel department new EPC orders drag down plate gross profit margin.

Steady growth in operation and substantial improvement in operating cash flow

The operation sector (operation and management of water treatment system + chemical sales and services) has grown steadily (revenue growth rate in 19 years is 21%, revenue / gross profit accounts for 56%). Downstream customers mainly come from petrochemical / automobile / steel / paper / civil sectors. Customers are mainly large state-owned enterprises that have served for many years, and the project resources are high-quality and stable. In 19 years, the company increased the collection of accounts receivable, and the advance collection of new EPC projects increased, the net cash flow of operating activities was 50 million, compared with-20 million in the same period of 18 years, and the cash flow improved significantly. The company operates light assets and has sufficient funds. 1Q20 has 400 million cash on hand and an asset-liability ratio of only 24%.

The demand for eliminate virus increased greatly as a result of the epidemic. 1Q20 homing net profit + 30%1Q20 realized revenue of 130 million yuan,-12% compared with the same period last year, mainly affected by the delay in resuming work / production reduction in SAIC-Volkswagen plants / hindrance in project construction and equipment delivery, etc. revenue from the automobile and steel sectors with relatively low gross profit margin decreased significantly. At the same time, the demand for eliminate virus brought about by the epidemic increased significantly, and the business of civil chemical sales and air duct cleaning and disinfection services with high gross profit margin grew rapidly. in addition, the cost of all kinds of operating projects of the company decreased during the epidemic, which jointly affected the net profit of returning home + 30% to 20 million yuan compared with the same period last year. We believe that the scene and demeanor brought by the epidemic is expected to continue, and we are optimistic about the company's annual performance.

Optimistic about the annual performance, downgraded to "overweight" rating

Affected by non-recurring profits and losses, the company's performance declined in 19 years, but the impairment of related assets has been fully recorded in 19 years, and it is expected to get rid of the haze in 20 years. Benefiting from the increase in demand for eliminate virus brought about by the epidemic, we adjusted the net profit for 20-21 years from 170,000,000 yuan to 170,000,000 yuan (the previous value is 1.41,900), EPS1.68/1.89 yuan (the previous value is 1.41pm 1.83), to 230 million yuan for 22 years after the introduction of eliminate virus, and EPS2.28 yuan. With reference to the 20-year average P/E33x of comparable companies, taking into account the strong operational attributes of the company's light assets, abundant cash flow and outstanding growth, it is given a 20-year 45-47xP/E with a target price of 75.82-79.19 yuan per share. Taking into account the recent increase in the company's stock price, the price-to-earnings ratio / price-to-book ratio is higher than that of most comparable companies, we downgrade to "overweight" rating.

Risk hint: eliminate virus business progress is not as expected, project progress is not as expected, gross profit margin is declining, and so on.