Steady and high-profit water company, business starts to accelerate growth. The company is the first veteran strong team engaged in water environmental protection business, there are 21 investment and operation projects in many places across the country, single projects are generally more than 50,000 tons, with large-scale project operation experience, significant technical brand advantages. The company formerly listed on the main board of the Singapore Stock Exchange and returned to the listed gem in 2018. Its main business includes water investment and operation, engineering cost, consulting, etc. The company's revenue from 2015 to 2019 is 8.2,7.1,8.1,7.7 and 1.93 billion yuan. From 2015 to 2018, the company is operating steadily, with revenue of 1.93 billion yuan (+ 150.5%) in 2019 and net profit of 290 million yuan (+ 72.3%). The substantial growth of project contracting business has driven the rapid growth of the company. 2020Q1 realized revenue of 330 million yuan (+ 6.8%) and net profit of 60 million yuan (+ 25.2%). The substantial increase in profit was mainly due to the adjustment of sewage treatment projects and water prices, the increase in the disposal of sludge treatment projects and the recovery of some accounts receivable. In the follow-up, the continuous growth of the total amount of water and the overall upward trend of prices are expected to promote the benign and rapid growth of the company's profits.
The profitability of water operation business is strong, and the asset-liability ratio is low. In the past 20 years, the company has put into production capacity of about 2 million tons per day, an increase of about 19% over the same period last year, and is expected to be put into production within two years with 250,000 tons / day on hand. The follow-up newly signed and reconstruction and expansion projects will continue to increase the water operation capacity, and the increase in water prices will also increase the company's profits. The management ability of the company in the water company is strong, and the cost of about 0.6 yuan per ton is significantly lower than the average cost of the market. The average gross profit margin of sewage treatment business is about 60.7% in 17-19 years, and the average gross profit margin of water supply business is about 72.9% in three years. The total amount of water has strong hematopoiesis and sustainable profitability. The company's asset-liability ratio has been maintained at a low level, with a debt ratio of about 42% in the past three years, laying a good foundation for financing and investment in new projects.
Organic solid waste opens a new growth point, Changchun business is expected to replicate, long-term expansion can be expected. The company introduced Japanese YM bacteria high-temperature aerobic fermentation technology for centralized harmless disposal and resource utilization, which is a new driving force for future growth.
At present, the organic solid waste business is about 2000 tons / day, of which the Changchun sludge project totaled 1400 tons / day was basically put into full production at the end of the year, which significantly increased the company's profits after it was put into operation, and the follow-up replication in Xinjiang and other places is worth looking forward to. The company actively participates in organic solid waste disposal business, arranges food, kitchen and wet waste harmless treatment, and new business drives new growth.
The increase of shareholders' holdings demonstrates long-term development confidence, and equity incentives recognize high growth rates. According to the equity incentive plan issued by the company at the beginning of 2020, it is estimated that the compound growth rate in the next three years will exceed 30%. Recently, a large proportion of the company's share buybacks and management shareholding show confidence in the company's long-term development.
Profit forecast and investment advice. It is estimated that the EPS from 2020 to 2022 will be 0.59,0.76 and 0.97 yuan respectively, with a compound growth rate of 30 per cent of net profit in the next three years. For the first time, it will be given a "buy" rating, a 15x valuation in 2021 and a target price of 11.4 yuan per share.
Risk tips: the project construction schedule is not up to expectations, water prices are not raised in time, policy risks, and so on.
