This report is read as follows:
With the strategy of "medium assets & heavy service", the company has effectively matched the water treatment needs of the sinking market in small and medium-sized cities. With the increase in the proportion of the company's operating business, the cash flow has gradually improved, and the performance quality has gradually improved.
Main points of investment:
Coverage for the first time, "overweight" rating. It is predicted that the net profit of the company in 2020, 2021 and 2022 is 1.43,1.73 and 206 million respectively, and the corresponding EPS is 0.99,1.19,1.43 yuan respectively. Based on the principle of caution, the target price is 21.78 yuan, 23% upward space.
Steady growth of sinking market water environment experts. The company is located in the water environment market of small and medium-sized cities, providing one-stop services for the government of small and medium-sized cities and industrial parks. From the perspective of sub-areas, the company's business is mainly industrial sewage and urban sewage treatment, industrial sewage and comprehensive environmental treatment business is the main driving force for performance growth. From the perspective of business model, the company's business is mainly EPC and operation.
The strategy of "medium assets & heavy service" superimposed technical advantages to promote the company to quickly develop sewage treatment business.
1) the ROT "medium assets" model accurately matches the water treatment needs of the sinking market: the capital requirement of ① ROT is less than BOT, and the complete project franchise is obtained with part of the investment to improve the efficiency of capital use; the ② ROT model matches not only the demand of the sinking market, but also the characteristics of the company in engineering, operation, capital and so on. 2) re-service: to enhance customer stickiness, the company continues to replicate projects in different places. 3) outstanding technological advantages: the acquisition of southern capital for environmental protection further strengthens the technological advantages and rapidly expands the industrial water market.
The "medium assets-heavy service" strategy superimposed technological advantages, operating sewage treatment capacity increased steadily, while new non-operating contracts were signed steadily every year, laying the foundation for the sustained and steady growth of the company's performance.
The proportion of operation is increased, the cash flow is good, and the pressure of balance sheet repair is less. 1) the proportion of the company's operating business is gradually increasing, with sewage operating income accounting for 27% and gross profit accounting for 37% in 2019. 2) the net cash flow of the company's operating activities in 2019 was 266 million, an increase of 620% over the same period last year. With the further growth of the operating business, the cash flow is expected to continue to improve. 3) the company's asset-liability ratio is at a low level in the industry, and with the increase in the proportion of operating business, the repair of the balance sheet will be accelerated.
Risk hint: the progress of the current project, the expansion of new projects and the repair of the balance sheet are lower than expected.
