Overview of events

On March 4, 2021, the company disclosed that its annual report for 2021 showed that its operating income for the whole year was 950 million yuan, an increase of 45.32% over the same period last year; its net profit was 158 million yuan, an increase of 62.43% over the same period last year; and basic earnings per share was 0.90 yuan.

Analysis and judgment:

Steadily open up the market, the annual performance of high growth.

In 2020, the company achieved operating income of 950 million yuan, an increase of 45.32% over the same period last year, and the net profit belonging to shareholders of listed companies was 158 million yuan, an increase of 62.43% over the same period last year, slightly exceeding expectations. In terms of business, the revenue of the water treatment business was 228 million yuan, an increase of 20.80% over the same period last year; the revenue of the engineering construction business was 674 million yuan, an increase of 45.03% over the same period last year; and the revenue of solid waste business was 48 million yuan. The steady growth of various businesses is due to the company's good market development performance throughout the year and sufficient new orders, including 6 new orders for franchising, with a total investment of 1.351 billion yuan, including 3 BOT (977 million yuan) and 3 PPP (374 million yuan) orders; and 29 new orders for EPC, with a total amount of 925 million yuan, an increase of 15.32% over the same period last year. In addition, the progress of the implementation of the company's major orders is in line with expectations, with 13.46% of the domestic waste incineration project in Chengde County, 99.09% of the domestic waste incineration project in Huimin County, and 72.86% of the rural domestic sewage treatment PPP project in Tongcheng, with an income of 223 million yuan. With the steady improvement of the company's operation scale and the orderly implementation of all kinds of stock orders, the acquisition of new orders in the market is stable, and the performance is expected to maintain high growth.

The acquisition strengthens the solid waste business, and the growth of the double main business is expected.

On December 28, 2020, the company announced that it plans to acquire 100% equity of Shanghai Die New Energy Technology Co., Ltd. in two stages for 456 million yuan. The project company of Pandy New Energy has a 30-year franchise for the environmental protection power generation project of domestic waste in Shijiazhuang, with a total design capacity of 1200 tons per day. Since May 2020, the two production lines have reached production capacity, and the waste incineration treatment is 1100t / d. According to the supplementary announcement disclosed by the company on December 29, 2020, during the franchise period of the Shijiazhuang municipal solid waste environmental protection power generation project, it is estimated that the operating income will be about 10000 million yuan / year-14000 million yuan / year, and the net profit is about 4000 million yuan / year-7000 yuan / year, bringing positive profit contribution to the company. By the end of the reporting period, the company had completed the first equity acquisition of Shanghai Butterfly, completed the registration of industrial and commercial change, obtained the "Business license" issued by the Market Supervision and Administration, and Anhui Central Environmental Protection obtained 75% equity in the Shijiazhuang waste incineration project. In 2020, the company successively put into production the domestic waste incineration power generation project in Dejiang County and the domestic waste incineration power generation project in Huimin County, in which Dejiang and Huimin two operating projects achieved a garbage disposal load rate of 100% at the end of the annual report by opening up the waste disposal market in surrounding counties and cities, and the production indicators were good. The company's Chengde project and Xixiang project are also in steady progress and are expected to be put into production in the next two years, which will greatly improve the company's waste incineration and disposal level. In 2020, the company's solid waste business income accounted for 5.03%, and the gross profit margin reached 50.75%. With the gradual growth of the company's solid waste business, the company's two main businesses are working at the same time, and the follow-up high growth is expected.

The gross profit margin has increased steadily and the financial position is sound.

In 2020, the company achieved a comprehensive gross profit margin of 32.60%, an increase of 2.44pct over 2019; of which the water treatment business achieved a gross profit margin of 59.33%, an increase of 4.54pct over 2019; the engineering construction business achieved a gross profit margin of 22.27%, an increase of 2.13pct over 2019; and the gross profit margin of solid waste business was 50.75%, which was in line with the profit margin level of the pure operation business of the waste incineration industry. With the gradual increase in the proportion of the company's solid waste business in the future, the company's gross profit margin still has room to improve. In addition, in 2020, the company is also actively promoting capital operation, improving the company's financial position and enhancing its anti-risk ability. In October 2020, the company completed a non-public offering of shares and raised 550 million yuan for Huimin County municipal solid waste incineration power generation project, Taian Daiyue emerging Industrial Park PPP project and supplementary liquidity of the company, which is conducive to promoting the construction of fund-raising projects and improving the company's profitability. In December, the company's convertible bonds were all converted into shares, which further reduced the company's debt and made the company's financial position more robust. In 2020, the net cash flow of the company's fund-raising activities was 621 million yuan, an increase of 4.04% over the same period last year; the net cash flow generated by operating activities (excluding cash paid for franchise projects) was 110 million yuan, with the increase in the scale of the company's operating projects in the future, operating income increased year-on-year, projects under construction steadily and orderly, the company's financial pressure will be gradually reduced, which is conducive to the long-term and healthy development of the company.

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. The company acquires the environmental protection power generation project of domestic waste in Shijiazhuang to further increase the scale of solid waste operation, enhance the strength of solid waste business, and improve the company's performance. The completion of the company's non-public offering of shares and the conversion of convertible bonds into shares will help the company to promote the investment project and ease the financial pressure. According to the current construction progress and new orders of the company's projects under construction, we will reduce our operating income in 2021 and 2022 from 1.515 billion yuan and 2.21 billion yuan to 1.44 billion yuan and 1.978 billion yuan, and add a forecast for 2023. The company's operating income is expected to be 14.40 pounds in 2023, an increase of 51.56%, 37.32% and 33.75%, respectively, in 2023. We adjusted the net return from 236 million yuan and 334 million yuan to 239 million yuan and 327 million yuan in 2021 and 2022, and added the 2023 forecast. It is estimated that the net profit from 2021 to 2023 will be 239,327,000,000 yuan, respectively, an increase of 51.3%, 36.8%, 31.9%, respectively, and the corresponding EPS will be 1.07,1.46,1.93 yuan. PE is 15-11-8 times, maintaining the "buy" rating.

Risk hint

1) the acquisition of new orders is not as expected.

2) the advance of on-hand orders is not as expected.

3) the slope climbing speed of the newly built MSW incineration project is not as fast as expected.