Local state-owned assets will inject new impetus into development and actively implement the transformation of industrial strategy. The company is the first listed company controlled by Dongyang State-owned assets Management Office. Since Dongyang Dongke Digital became the controlling shareholder of the company, the company has actively implemented the transformation of industrial strategy and established the strategic development direction of providing life services to schools and other parks on the basis of energy-saving technology and the application of new energy. A business layout dominated by the energy-saving industry and supplemented by the film and television culture industry has been formed. The company has gone through three stages:
1) the real estate industry started: the company, formerly known as Zhejiang Guangsha, is one of the established real estate development enterprises in Zhejiang Province. it was established in July 1993 and listed on the Shanghai Stock Exchange in April 1997. it has become the first listed company in the national construction industry recommended by the Ministry of Construction.
2) withdraw from the real estate industry and enter the film and television culture industry for the first time: in 2014, the company acquired a 100% stake in Guangsha Media through asset exchange and entered the film and television culture industry, mainly engaged in the investment, production and distribution of films and TV dramas. In 2015, the company formally proposed to gradually withdraw from the real estate industry within three years to achieve industrial transformation.
3) in the second transformation, local state-owned assets holding, through epitaxial mergers and acquisitions, cut into the school hot water service industry and entered a new stage of development: in July 2021, Dongyang Dongke Digital became the controlling shareholder of the company, accounting for 28.98% of the total share capital. Dongyang State-owned assets Supervision and Administration Office has become the actual controller. Through epitaxial mergers and acquisitions, the company has successfully cut into the energy-efficient school hot water service industry: in October 2021, the company successfully acquired a 50.54% stake in Zhenglan Energy Saving, a university hot water supply service provider, and in October 2022, the company successfully acquired a 100% stake in Huixian Youze, a leading campus air energy hot water system solution provider and service provider. In November 2022, the company acquired a 43.82% minority stake in Zhenglan Energy Saving and completed a delivery of 30.53% in the reporting period of 2022. After this acquisition, the company will hold a total of 84.36% of Zhenglan Energy Saving shares.
The subsidiary ploughs the school hot water service industry and serves a wide range of customers. Subsidiary Zhenglan Energy Saving and Huixian Youshi are mainly engaged in campus hot water service, through the use of air source heat pump to provide college teachers and students with efficient energy-saving, intelligent, safe, economical and convenient bath hot water, drinking water, direct drinking water and other services. Subsidiaries serve a wide range of university customers. according to the company's 2022 annual report, the company's subsidiaries Zhenglan Energy Saving and Huixian Youshi have been ploughing the campus hot water service field for more than 10 years, and are the leading enterprises in East China and Southwest China respectively in the university hot water service industry. there are a total of 287 hot water supply service projects in operation, serving more than 2 million students, and the annual water consumption exceeds 9 million tons. Is a large-scale campus air energy hot water system solution provider and service provider. We believe that the company's successive acquisition of two leading enterprises in the school hot water service industry will help the company to integrate their respective channel advantages and management experience, form business coordination, improve business efficiency, expand customer coverage, and enhance scale advantages. enhance the company's market competitiveness in the field of campus hot water service.
The school hot water supply service industry is a "humble" good industry:
1) to meet the needs of colleges and universities, to solve the traditional campus hot water temperature instability, high cost and many pain points.
The early campus hot water equipment was usually cheap and high energy-consuming coal-fired boilers, and the heating of coal-fired boilers required manual heating and emission control, which limited the heating period. "small flow", "water temperature up and down", "insufficient hot water" and so on often occur during the peak hours of water use. The company uses air source heat pump equipment to provide hot water services for colleges and universities. Air source heat pump equipment uses air to generate heat energy, and has the characteristics of all-weather, large amount of water, high water pressure, constant temperature, low energy consumption and so on. It can not only meet the needs of students for safe, comfortable and stable hot water, but also reduce the cost of school hot water. At the same time, compared with gas, electricity and other heating methods, the air source heat pump scheme can greatly reduce the economic cost. According to the Finney technology prospectus, under the same total heat demand, the annual fee for using air-source heat pumps is only 25% and 47% of that of gas water heaters and electric water heaters, respectively.
2) in line with national policy, energy saving and emission reduction. With the continuous implementation of the strategic goal of "carbon peak" and "carbon neutralization", "notice of the State Council on issuing the" 14th five-year Plan "Comprehensive work Plan for Energy Saving and Emission reduction", "14th five-year Plan" and other policies have been introduced continuously. Colleges and universities in China are gradually carrying out the engineering transformation project of using air energy heat pump equipment for heating. Air source heat pump has the advantage of energy saving and environmental protection. By using a small amount of electric energy to transport and convert energy, the power cost is saved, and there is no waste gas, waste and other pollutants in the process of operation. According to the Finney Technology prospectus, with the same total heat demand, the daily energy consumption of air-source heat pumps is only 24% of that of electric water heaters.
3) the market space of energy-saving service industry is wide, and the market capacity of hot water supply service in colleges and universities is huge. From 2016 to 2020, China's energy-saving service industry showed a steady growth trend. According to the China Energy Conservation Association, the output value of China's energy-saving service industry increased from 358.7 billion yuan in 2016 to 591.6 billion yuan in 2020, with a compound annual growth rate of 13.32 percent. According to the forecast of the prospective Industrial Research Institute, by 2025, the total output value of the national energy-saving service industry will reach about 808 billion yuan. In recent years, under the macro adjustment of the national coal reform policy, colleges and universities are gradually carrying out the engineering transformation project of heating with air source heat pump equipment, and the market capacity in this field is huge. According to the National Statistical Bulletin on the Development of Education in 2022 issued by the Ministry of Education, there are a total of 3013 colleges and universities in China in 2022, with a total of 46.55 million students in higher education. According to the number of end-users of 46.55 million students in higher education in China, the average annual cost of using hot water is 160yuan per person (the average annual water consumption of Huixian excellent policy cooperative college students is about 200yuan per person). It is conservatively estimated that the market scale of hot water supply in colleges and universities is about 7.448 billion yuan per year. In addition, the number of colleges and universities in China is increasing year by year in recent years, and the new colleges and universities will provide new incremental demand for the hot water supply market of colleges and universities.
The operating cash flow of the company's school hot water service business is stable, the gross profit margin has increased steadily, and the revenue and net profit have increased significantly compared with those before the epidemic. The subsidiary school hot water service business is mainly carried out through the similar BOT mode, which has the characteristics of long franchise period and stable cash flow. Subsidiaries have obtained university hot water operation projects in the form of marketing and public bidding, and signed a service contract with the school for 8-15 years. After the signing of the contract, the company will carry out the system design, equipment purchase, installation and operation management of the project, and all the investment in the project will be fully spent by the company. After the successful operation of the project, students will spend money by swiping the campus card or special hot water card. The company exclusively provides hot water service to students and obtains corresponding income within the number of years stipulated in the contract.
From 2019 to 2021, the gross profit margins of Zhenglan Energy Saving and Huixian Youze have increased steadily (if the impact of the epidemic in 2019 is not taken into account). According to the company announcement, the gross profit margins of Zhenglan Energy Saving in 2020-2021 are 45.91%, 27.29% and 47.27%, respectively. Huixian Youze gross profit margin is 30.82%, 18.78%, 32.04% respectively. In addition, excluding the impact of the 2020 epidemic, Zhenglan's energy-saving revenue and net profit in 2021 will be 121 million yuan and 29 million yuan respectively, an increase of 32.68% and 87.28% over 2019. Huixian's revenue and net profit will be 211 million yuan and 37 million yuan respectively in 2021, an increase of 16.55% and 142.8% over 2019.
In 2022, the revenue and net profit of Zhenglan Energy Saving are 126 million yuan and 28 million yuan respectively, while those of Huixian are 77 million yuan and 20 million yuan respectively.
Set up a joint venture with Ningbo Levi, a leading domestic company, to move forward in the field of energy storage. According to Aiqingcha, on November 22, 2022, the company and Ningbo Livineng jointly established a joint venture Dongyang Livineng, with a registered capital of 100 million yuan, and the shares held by the company and Ningbo Livineng were 35% and 40% respectively. Ningbo Levi was founded in 2015, backed by Sequoia Capital (China) and Shanshan shares. The company focuses on the research, development, manufacturing, marketing and technical services of lithium-ion batteries and power batteries and systems. Committed to providing customers with complete product application solutions. According to Dongyang Rong Media Center, Levineng plans to put into production of 10GW cell capacity project in Dongyang City.
The company has plenty of cash on paper, and the extension expansion is ready to go. As a local state-owned listed company, the company is rich in resources. The company is rich in cash. According to the company's quarterly report of 2023, the company's monetary capital is about 1.063 billion yuan. According to the company's 2022 semi-annual report and annual report, the company's directors and management team have rich practical experience in mergers and acquisitions, and the company plans to continue to pay attention to and carry out research on similar business projects on the basis of the business integration of the two subsidiaries. timely investment and mergers and acquisitions of appropriate projects, gradually expand the company's main business scale, and strive to build a domestic hot water energy-saving service industry leader. In addition, the company will continue to explore the new energy industry in depth, make full use of the advantages of new energy industry clusters, and vigorously explore and develop the application of new energy technologies on the basis of tamping the company's original energy-saving service industry status. Timely through investment mergers and acquisitions and other means, enhance the core competitiveness at the same time, implement the double carbon strategy.
Investment suggestion: as the first listed company controlled by Dongyang State assets Office, the company actively implements the transformation of industrial strategy and forms a strong market competitiveness through the acquisition and acquisition of leading enterprises in the field of school hot water supply service. We estimate that the return net profit of the company from 2023 to 2025 is 45 million yuan, 49 million yuan and 63 million yuan respectively, and the EPS is 0.05,0.06,0.07 yuan respectively. On August 11, 2023, the closing price was 4.81yuan per share, corresponding to the PE of 89.6times, 83.1times and 64.2times respectively from 2023 to 2025. Considering that the company, as a local state-owned listed company, has the advantage of rich resource integration, positive strategic transformation and rapid landing, it is covered for the first time and given the rating of "increasing holdings".
Risk tips: new business market expansion is not as expected, strategic transformation is not as expected, the risk of business integration, the company's financing guaranteed by overdue litigation or the risk of expected liabilities, the company's net profit loss for three consecutive years.