Events:

On December 28, 2020, Central Environmental Protection announced that it plans to sign a "Equity acquisition Framework Agreement" with Shanghai Changzhong Investment Center, Xiamen Kunmao Zhiqiang Equity Investment Partnership, Shanghai CLP Investment and New Energy Investment Management Center and Wangjian. 456 million yuan in two acquisitions of the 100% stake in Shanghai Disc New Energy Technology Co., Ltd. The project company subordinate to the target company, Yuanpian New Energy, has a 30-year franchise for the Shijiazhuang waste environmental protection power generation project, with a total design capacity of 1200 tons per day, and has reached production in May 2020.

Comments:

This acquisition project has been put into operation, which will thicken the future performance. Through this acquisition, the company will greatly increase the daily processing capacity and operation scale of the waste incineration power generation sector, which can further increase the company's market share and profitability. According to the announcement, the two production lines of the project were put into trial operation in January 2020 and reached production in May 2020. During the franchise period, the project is expected to achieve revenue of about 100 million yuan / year to 140 million yuan / year, and net profit of about 40 million yuan / year to 70 million yuan / year, compared with the company's expected profit of about 150 million yuan in 2020, an increase of 26.67%.

The company's biennial revenue performance has grown rapidly, the gross profit margin has increased slightly, and cost control has led to a slight decline in the expense rate. In 2018 and 2019, the company realized main business income of 390 million yuan and 654 million yuan respectively, a year-on-year growth rate of 67.78% and 67.59%, and a net profit of 60.4447 million yuan and 97.1121 million yuan respectively, an increase of 19.25% and 60.66% over the same period last year. The company's comprehensive gross profit margin reached 30.12% and 30.16% respectively, which is accelerating development. 2020

From January to September 2000, the company's performance maintained a high-speed improvement, with an operating income of 6.5.

Billion yuan, an increase of 51.23% over the same period last year, and a net profit of 96.1984 million yuan, up 58.73% over the same period last year. The company overcame the impact of the epidemic and still achieved rapid growth in revenue performance, reflecting strong business strength and rich project reserves. During the reporting period, the company's comprehensive gross profit margin was 31.72%, up 1.92pct from 29.8% in the same period last year. At the same time, the sum of the three expense rates (including R & D expenses) from January to September 2020 was 12.21%, which was lower than that of the same period last year (0.17pct). Among them, the financial expense rate was 7.32%, up 1.4pct, the management expense rate was 2.53%, the sales expense rate was 0.3%, and the R & D expense rate was 2.06%, down 1.07pct from the same period last year. The effect of corporate cost control is beginning to show, at the same time, the state issued tax support policies for enterprises, superimposed on the optimization of the company's own income structure to continue to improve the gross profit margin, all of which have a positive impact on the company's profits.

Convertible bonds and private issuance are completed, actively carry out capital operation, consolidate the position of the industry, and enhance the strength of the company. In June 2019, the company issued 2.9 million convertible bonds with a total raised amount of 290 million yuan. The corresponding investment projects were "Tongcheng Rural domestic sewage treatment PPP Project" and "sewage treatment Plant PPP Project of Lugang Logistics Park, Heliu Town, Yangxin County". In 2020, the company raised 550 million yuan through a non-public offering of shares for the "Huimin County Municipal solid waste Incineration Power Generation Project" and "Taian Daiyue emerging Industrial Park Water supply and drainage Integration PPP Project", so that while maintaining rapid growth in the field of water treatment, the company can continue to expand into the field of solid waste resources, and further establish its own advantages in the field of environmental governance. At the same time, the funds raised by the two financing can also optimize the company's financial structure, so that the company has a stronger ability to resist market risks and project selection ability.

The gradual release of on-hand orders and the continuous expansion of business territory will ensure the rapid growth of the company. With the successful commissioning of many projects such as "Huimin 600t / day waste power generation project" and "Shandong Yangxin River Project", the company expects to achieve an increase of 1000 tons per day in waste incineration; in sewage treatment, it will achieve an operation scale of 200000 tons per day, and the company's overall operation and project revenue will continue to grow. And in the first half of the year, the company successfully expanded environmental engineering orders in atmospheric monitoring, leachate and other related fields, which will not only contribute to the subsequent performance, but also help the company to accumulate project experience and further cultivate in new fields. a variety of possibilities to increase the company's revenue. The company has sufficient reserves in both engineering and investment projects, and it generally takes one to three years for each project to be gradually implemented, landed and put into production. The gradual release during this period will guarantee the current rapid growth of performance.

Profit forecast and investment advice: the company has a good momentum of development in recent years, with rapid growth in revenue performance in 2019 and 2020, further improvement in operation scale, sufficient orders on hand, and strong protection of future performance flexibility. at the same time, it can make full use of the power of the capital market to help the company improve its business scale and performance rapidly and improve its long-term development. We forecast that the EPS from 2020 to 2022 will be 0.67,1.03,1.34 yuan respectively, and the current stock price corresponding to PE will be 21.2,13.9,10.7 times respectively, maintaining the "highly recommended-A" rating.

Risk hints: the progress of the acquisition is not as expected; the construction of waste incineration power generation projects is not as expected; the progress of newly signed orders is not as expected; the risk of declining gross profit margin caused by intensified market competition; the risk of tight cash flow; the risk of recovery of accounts receivable; the systemic risk of the market, etc.