Main points of investment

Event: in the first half of 2020, the company achieved operating income of 1.606 billion yuan, down 4.73% from the same period last year; net profit from home was 159 million yuan, up 1.81% from the same period last year; net profit from non-return was 157 million yuan, up 2.26% from the same period last year; and the weighted average ROE decreased 2.38pct to 4.44% from the same period last year.

Performance is not afraid of the epidemic in the second quarter of a strong rebound, revenue structure optimization operating income of more than 50%. 20H1 achieved a net profit of 159 million, an increase of 1.81%, of which 20Q2 realized a net profit of 111 million yuan, an increase of 15.13%. The performance is not afraid of the strong rebound of the epidemic. Sub-business split, operating income accounts for more than 50%. 1) the engineering business realized revenue of 722 million yuan, with a decrease of 24.99%, and the revenue share decreased from 12.21pct to 45.11%; 2) the operating business realized revenue of 804 million yuan, an increase of 24.50%, and the revenue share increased from 11.77pct to 50.18%; 3) the equipment business realized revenue of 75 million yuan, an increase of 5.12%, and an increase of 0.44pct to 4.71%.

Operating project gross profit margin double rise, the overall gross profit margin increased 5.44pct. 20H1's overall gross margin rose 5.44 percentage points to 31.33%. Divided by business model: 1) the gross profit margin of engineering business is increased to 18.09% to 18.09%; 2) the gross profit margin of operating business is increased by 4.88pct to 42.84%; 3) the gross profit margin of equipment business is reduced to 32.83% by 0.71pct.

The growth rate of new orders affected by the epidemic has slowed down, and there are plenty of orders on hand. We look forward to the release of cyclical orders after the epidemic. 1) Engineering orders: 20H1 added 26 engineering orders, totaling 895 million yuan, an increase of 51.63% over the same period last year. At the end of the period, there were 132 orders on hand, with a total amount of 3.911 billion yuan, a decrease of 21.91% over the same period last year. 2) operational orders: 20H1 added 9 operational orders, totaling 234 million yuan, a decrease of 51.11% compared with the same period last year. As of June 30, 2020, there were a total of 20 operational orders during the construction period, with an outstanding investment of 256 million yuan, a decrease of 51.46% compared with the same period last year.

Large-scale buybacks show confidence, and the buybacks are intended to be used to motivate core employees. The company announces that it intends to buy back the company's shares by centralized bidding, the repurchase amount shall not be less than 150 million and not more than 300 million, and the repurchase price shall not exceed 13.50 yuan per share. This large-scale buyback 1) reflects management confidence: buyback is based on management's affirmation of the future development prospects of the industry and the company and the intrinsic value of the company; 2) shares are intended for equity incentives & employee shareholding: fully mobilize senior managers and core backbone employees, improve the incentive mechanism to bind employees, and share the company's development dividend.

Energy conservation in the master, tens of millions of tons of water resources integration is expected. By the end of 19, China Energy Saving Group had a total of 886.25 million tons of water assets in hand. Considering the problem of inter-industry competition, as well as the cooperation mode between Guozhen Environmental Protection and central enterprises in the early stage of high-quality operation capability, the future resource integration or "operational technology + capital" light asset model is still worth looking forward to. Central Water as the main body of the group's environmental protection water business, with reference to its business structure, the scale of water supply accounts for a relatively large proportion, and the company ploughs the sewage treatment business plate, and the two sides are expected to achieve synergy and complementarity of different business advantages.

After the mixed reform, the financing capacity is restored, and the expansion can be accelerated. The company's credit system is in line with China's energy conservation, the financing capacity has been improved, financing channels have been broadened, and financing costs have been reduced. The improvement of financing will enhance the company's ability to acquire projects, promote project progress, and accelerate expansion.

Profit forecast: according to the operating conditions disclosed in the company's 20-year mid-year report, considering the impact of share dilution after the completion of the fixed increase, it is estimated that the company's 20-22 EPS (calculated by the net profit of the parent divided by the total share capital at the end of the period) is 0.57, 0.68 and 0.82 yuan, respectively, corresponding to the PE of 19-16-13, maintaining the "buy" rating.

Risk hint: the construction progress of the project is not up to expectations, and the financing improvement is not up to expectations.