Overview of events

On October 13, 2020, the company disclosed that from the beginning of the year to the end of the reporting period, operating income reached 650 million yuan, an increase of 51.23% over the same period last year, net profit of 96 million yuan, an increase of 58.73% over the same period last year, and basic earnings per share of 0.58 yuan.

Analysis and judgment:

The rapid growth in the third quarter continued to be realized, and the annual performance was reliably guaranteed.

In the first quarter, the company achieved a cumulative revenue of 650 million yuan, an increase of 51.23% over the same period last year, and a net profit of 96 million yuan, an increase of 58.73% over the same period last year. Taking a closer look at each quarter, the company was affected by the epidemic in the first quarter, with revenue of 102 million yuan, an increase of 15.81% over the same period last year, and a net profit of 14 million yuan, an increase of 35.08% over the same period last year. In the second quarter, with the smooth progress of the company's water environment treatment project, the scale of sewage treatment business continues to expand, the company achieved a single-quarter operating income of 238 million yuan, a net profit of 38 million yuan, a significant increase. In the third quarter, the company maintained a high growth trend, with an operating income of 310 million yuan in a single quarter, an increase of 45.56% over the same period last year, and a net profit of 44 million yuan, an increase of 46.30% over the same period last year. In the fourth quarter, the company is building sewage treatment projects steadily, solid waste disposal business capacity climbing gradually completed, the company's annual performance is expected to maintain rapid growth.

Solid waste business will be promoted as scheduled, and the development of dual-main industries will be strengthened.

At the beginning of 2020, the company's first municipal solid waste incineration power generation project (Dejiang project) was successfully put into production, the operation was normal, various production indicators were at a high level in the industry, and the project benefit was good. In the third quarter, the Huimin waste power generation project built by the company was successfully connected to the grid on August 28, and the three major nodes of boiler ignition, steam turbine flushing and unit connection were successfully realized as scheduled, and the company's waste incineration project entered a new situation. The company's Chengde project and Xixiang project are also in steady progress, and it is expected that they will be put into production in an orderly manner in the next two years. Planned construction will not put pressure on the company's finance, and after completion, it will greatly improve the company's waste incineration and disposal level. In terms of sludge disposal, the whole pepper project has entered the trial production stage in the second quarter, the sludge disposal effect is good, and the product quality meets the prescribed standards; Lankao project, Taian project and Ningyang project are also in smooth progress. In addition, the company has reached a strategic partnership with Shanghai Kangheng Environmental Co., Ltd. the cooperation between the two sides in the field of waste incineration and power generation will help the company to obtain more business resources and support in solid waste disposal, waste disposal and other business areas, strengthen the company's solid waste business disposal capacity, and form the dual main business development of "sewage + solid waste".

Although the gross profit margin fell slightly from the previous month, the company's net profit margin remained stable.

In the first three quarters of 2020, the company's water operation scale increased and solid waste projects were put into production one after another, and the company's revenue increased significantly, and the increase in scale led to an increase in operating costs in the same direction. During the reporting period, operating costs reached 444 million yuan, an increase of 47.09% over the same period last year, and an increase of 101.57% over the first half of the year, slightly faster than the month-on-month growth rate of revenue (91.35%). As a result, the gross profit margin in the first three quarters fell 3.46 percentage points from the first half of the year. In terms of cost breakdown, the most obvious increase is in financial expenses, which reached 48 million yuan during the period, an increase of 86.99% over the same period last year, mainly due to the increase in the scale of financing and the calculation of interest on convertible bonds. It is expected that financial expenses will decline with the redemption of convertible bonds or conversion of shares. Management expenses also increased with the growth of the scale, reaching 16 million yuan during the period, an increase of 30.03% over the same period last year, but on the whole, the company's net profit margin remained stable and did not fluctuate greatly. At present, the company mainly focuses on EPC orders and operating projects, and it is expected that both gross profit margin and net profit margin will be relatively stable. The company's public research records in September show that as of late September, the company had more than 700 billion engineering orders and more than 2 billion investment orders, and sufficient orders on hand will ensure the company's performance growth.

Investment suggestion

The company has formed a "sewage + garbage" two-wing development pattern, sewage treatment business and garbage incineration business go hand in hand, helping the company's performance to grow at a high speed. At the same time, the strategic cooperation between the company and Kang Heng Environment will promote the steady expansion of the company's industrial layout, and the approval of non-public offerings will ensure more robust operation and management of the company. It is estimated that the company's operating income from 2020 to 2022 is RMB 10.31 million, an increase of 57.6%, up 57.6% and 45.9% respectively over the same period last year. The net profit from home is RMB 1.56, 2.36 and 334 million respectively, an increase of 60.6%, 51.7% and 41.2%, respectively, and the corresponding EPS is 0.91,1.39 and 1.96 yuan, respectively. PE is a multiple of 19-13-9, maintaining the "Buy" rating and is highly recommended.

Risk hint

1) the market competition has intensified, and the acquisition of new orders is not as expected.

2) the second outbreak of the epidemic affected the construction of the project, and the advance of on-hand orders was not as expected.

3) the capacity utilization rate of the new municipal solid waste incineration project is lower than expected.