Core ideas:
The results of the public offering will be announced on July 23, which, if completed, will ease the pressure on the high debt ratio.
The company plans to issue no more than 49.87 million shares at 11.63 yuan per share, and is expected to raise no more than 580 million yuan. The additional funds will be used for the construction and supplementary liquidity of two new projects. After reaching production, the two projects are expected to contribute 586 million yuan in annual income and 116 million yuan in annual net profit. As of 2020Q1, the asset-liability ratio has reached 79%. Financial expenses for 2019 are 170 million yuan, which is 0.6 times the net profit of that year. High financing costs and low indirect financing space are important factors restricting development. We expect that the completion of the additional offering will effectively enhance the financial strength of the company and provide strong support for sustained growth in the future.
The income performance increased rapidly, and the operating cash flow changed from negative to positive in 19 years. In the past three years, the company's income grew at a compound rate of 58%, and its mother's net profit grew at a compound rate of 65%, achieving rapid growth. The growth in revenue performance was mainly due to the implementation of hand orders, but it also increased the debt ratio (from 56% to 78% in three years) and financial expenses. The company has strengthened its payback in recent years, with a net operating cash flow of 105 million yuan in 2019, the first substantial increase since listing. In addition, the company will also reorganize 2016 additional issues and convertible bond funds to supplement the company's capital supply. Superimposed by this public offering, the company is expected to further replenish funds and help promote the construction of the project.
The water treatment business has maintained growth and the operating income has been gradually released. The company's water treatment business maintained rapid growth, with an income of 2.53 billion yuan (+ 24% compared with the same period last year) in 2019. In addition, with the gradual operation of investment projects, the company achieved operating income of 162 million yuan (+ 173% compared with the same period last year) in 2019, and the operating effect was gradually released. In terms of orders, the company signed a newly signed order of 3.59 billion yuan in 2019. By the end of 2019, 10.37 billion yuan of in-hand orders remained abundant, and the revenue of on-hand orders / 2019 was more than 3 times.
Low valuation, high flexibility target, maintain "buy" rating. Excluding public offerings and convertible debt-to-equity swaps, the company's EPS from 2020 to 2022 is expected to be 0.99,1.17,1.35 yuan per share, respectively, and the corresponding PE will be 12.1,10.2,8.8 times according to the latest closing price. The company has abundant orders-on-hand, convertible bonds and public offerings to supplement the funding gap and ensure the promotion of orders, the industry is still broad in terms of water pollution control and soil remediation, with reference to the 15 times PE valuation given by the same industry company in 2020, corresponding to the reasonable value of 14.86 yuan per share, maintaining the "buy" rating.
Risk hint: the improvement of the financing environment is not as good as expected; the landing speed of orders and projects is lower than expected.
