The strong ecological private force can adjust the structure and control the risk steadily. The company is the leader of ecological garden in East China, and its business covers three major areas: ecological restoration, ecological culture and tourism, and ecological products. After listing, it quickly acquires Jindian Garden and Green Source, and continues to expand and optimize the business layout of ecological engineering and ecological restoration. In 2019, the company's strategy focuses on three core urban agglomerations, strict control of large cushion capital leads to a periodic slowdown in business acceptance, a decline in revenue and performance scale, and adjustable structure and risk control measures are conducive to the stability of the company. The company's expense rate is low and its profitability is higher than that of its peers. We estimate that the company's current orders are about 3.7 billion yuan, which is 1.9 times the revenue in 2019. There are plenty of orders on hand, and there is plenty of momentum for future growth.
The supply, demand and financing of the garden industry have improved, and the industry is expected to turn a turning point. After local government deleveraging since 2017, credit contraction in 2018 and successive transfer of controlling shares in leading enterprises in 2019, the supply side of the ecological garden industry has shrunk substantially. But on the other hand, the construction of ecological environment is the pre-requirement of high-quality development in China in the future, and the needs of landscaping, water ecological treatment, mine management and wetland construction will exist for a long time.
In 2019, the total investment in fixed assets in the ecological protection and environmental governance industry reached 749.9 billion yuan, an increase of 37 percent, and the demand of the industry continued to grow rapidly. Therefore, in the case of shrinking supply and improved demand, enterprises that used to focus on controlling the quality of their balance sheets and still have plenty of funds are expected to benefit significantly and will be the dominant players in the future market.
The business layout is in line with the national urban agglomeration strategy, and the technical strength is leading. At present, the long-term development plans of major urban agglomerations all emphasize the construction of ecological environment, which has abundant finance and broad space for ecological construction. the company continues to focus its business on the Yangtze River Delta urban agglomeration, the "double axis" along Beijing-Shanghai, the urban agglomeration in the middle reaches of the Yangtze River and Chengdu-Chongqing urban agglomeration "three areas", business sources and project quality are expected to continue to improve, promote the company's healthy and high-quality development. The subsidiary Lvzhiyuan ploughs deep into the field of mine restoration and land renovation, with outstanding technical strength, and won the relatively scarce Class A qualification of geological disaster prevention and control unit in 2019, the competitive advantage of the company's ecological restoration industry chain is expected to be further highlighted.
The balance sheet has room for expansion and innovation drives long-term growth. As of the end of 2020Q1, the company's asset-liability ratio / interest-bearing asset-liability ratio is 56% and 26% respectively, the financial operation is relatively sound, and the balance sheet has some room for expansion. In recent years, the company has continued to innovate its business model and product categories, among which the Luzhiyuan Mine Restoration Project has changed the mode of a large amount of advance funds in the early stage of the garden industry, using the balance index of tailings treatment and land occupation to promote the whole process of market-oriented operation income coverage project, which is expected to improve the company's cash flow to a certain extent. In addition, the company has developed an international engineering technology for efficient resource utilization of landscaping waste-Muji, which has been gradually promoted to the market by relying on the advantages of the company's capital, technology and sales channels, and has a broad space at home and abroad.
Investment suggestion: according to the company's current orders-in-hand and operating trends, it is predicted that the company's net profit in 20-21-22 will be RMB 2.6cm, 3.2pm, 0.60RMB, respectively, and the current share price, corresponding to PE, will be times higher than that in 28-23-18. Considering the company's future growth potential, the company will be given an "overweight" rating for the first time.
Risk tips: industry policy risk, accounts receivable risk, credit environment tightening risk and so on.