Event
Chengfa Environment issued a notice of stock exchange to absorb and enlighten the environment.
The company intends to absorb and enlighten the environment at a price of 7.59 yuan per share, and the exchange price of Chengfa Environment is 11.63 yuan per share, that is, one enlightening environmental share can be exchanged for 0.6526 shares of Chengfa Environment. In the future, after the completion of the merger, in order to build a scientific and technological integration platform for ecological protection and high-quality development of the Yellow River Basin, the company plans to change its name to the Yellow River Environment.
Brief comment
It is proposed to exchange shares to absorb and enlighten the environment, and the company is based on Henan to distribute the whole country.
Chengfa Environment is a local state-owned enterprise platform controlled by the Department of Finance of Henan Province, which is mainly engaged in highway development and operation and infrastructure investment and operation. Relying on the background advantage of its shareholders, the company actively expands the layout of environmental protection industry in Henan Province, extends upstream and downstream based on its own waste incineration project, and creates a solid waste treatment chain for the whole industry. Enlightening the environment's main business covers the solid waste collection and disposal industry chain and the comprehensive management of water ecology, which has good cooperation with the company's layout in the field of environmental protection. From the perspective of the restructuring plan, the company gave a 10% premium rate on the basis of the average price of 6.9 yuan per share in 20 trading days before the enlightening environmental pricing benchmark, and finally decided to absorb and enlighten the environment at the price of 7.59 yuan per share.
In addition, the company also plans to raise no more than 2.7 billion yuan from no more than 35 specific investors through non-public offerings of A-shares to repay bank loans, supplement current funds, and pay the transaction fees. In order to protect the interests of minority shareholders, the merger plan sets up the right of claim for acquisition (for the environment of Chengfa) and the right of cash option (for the enlightening environment), that is, the corresponding dissenting shareholders can sell the shares back to the environment at the pricing benchmark price. After the completion of the merger and the raising of supporting funds, regardless of the impact of the acquisition claim and the cash option, the total share capital of the company will increase from 642 million shares to 1.768 billion shares, and the shareholding proportion of Henan Investment Group will drop from 56.47% to 20.5%. Is still the controlling shareholder of the company.
After the merger, the size of the company has increased significantly, and earnings per share may be diluted in the short term. According to three quarterly reports, the total assets of Chengfa Environment and enlightening Environment are 11.45 billion yuan and 44.84 billion yuan respectively, and the net assets are 4.9 billion yuan and 17.25 billion yuan respectively. After the merger, the size of the company's assets will be significantly improved, and the business layout will gradually expand to the whole country. According to the enlightening environment's 2020 performance forecast, its 2020 return net profit is a loss of 1.25 billion ~ 1.57 billion yuan, which is significantly lower than that of the same period last year. We estimate that its quarterly loss in the fourth quarter is between 1.478 billion and 1.798 billion yuan, which may be due to large asset impairment. Considering that if the company merges and integrates with the enlightening environment, it will take time for the relevant assets to be optimized and integrated, and the earnings per share of Chengfa environment may be diluted in the short term.
Asset integration still needs multiple approval processes, and maintaining the "buy" rating of Chengfa environment, considering that multiple approval processes are still needed for this asset integration, there is still some uncertainty about the future progress. Without considering the impact of asset integration for the time being, we are optimistic about the continued growth brought about by the company's fast-growing incineration capacity and sanitation operation projects. Taking into account the gradual recognition of revenue from the engineering business, we estimate that the company's net profit in 202020 will be 5.98,11.74 and 1.242 billion yuan respectively, maintaining a "buy" rating.
Risk hint: highway toll policy adjustment risk; project under construction is less than expected risk; reorganization is less than expected risk