Overview of events

The company released the 2020 annual report, achieving revenue of 950 million yuan, an increase of 45.32% over the same period last year, and a net profit of 158 million yuan (deducting 152 million yuan), an increase of 62.43% (deducting non-growth of 63.26%).

Basic earnings per share is 0.90 yuan. ROE (weighted) was 13.84%, an increase of 1.65 percentage points.

The net amount of cash paid by investment in franchise projects was 110 million yuan, a decrease of 29.12% compared with the same period last year. Among them, in the single quarter, the company Q4 achieved revenue of 300 million yuan, an increase of 34.00% over the same period last year, and a net profit of 62 million yuan, an increase of 68.57% over the same period last year. At the same time, the company issued a profit distribution plan of 2020: 9 shares for every 10 shares, and a cash dividend of 0.80 yuan (including tax).

Q4 performance exceeded expectations, solid financial results; sufficient orders-on-hand is expected to continue high growth. Thanks to the commissioning of the Q4 Huimin (600 tons / day) waste incineration project and the company's good cost control ability, the company's Q4 performance exceeded our previous expectations: the company's sales gross profit margin increased by more than 2 percentage points in 2020, an increase of more than 2 percentage points. the expense rate during the period was 12.48%, down 1 percentage point.

The company's asset-liability ratio is 47.21%, down 14.2% from the same period last year; the cash-to-cash ratio is 81.2%, down 7%, combined with the company's business model, at a relatively reasonable level.

During the reporting period, the company added 925 million engineering orders, with more than 700 million yuan on hand at the end of the period, and 1.35 billion new franchise orders, 1.569 billion during construction and 272 million during operation. In the future, with the release of orders and the commissioning of operating projects, the company's performance will continue to improve for a long time.

Sewage treatment capacity reached 900,000 tons per day; 2021 is expected to continue to improve. In the second half of the year, with the Quzhou project in Zhejiang (50,000 tons / day), the western Shushan project in Hefei (50,000 tons / day), the Yangxin River Town project (30,000 tons / day), Tongcheng rural domestic sewage project (28,000 tons / day) and other projects will be put into operation one after another. by the end of the year, the company's total treatment capacity will reach about 900,000 tons / day, an increase of about 30%. In 2021, the bid raising and transformation of Taian No. 1 and No. 2 plants (with a total processing capacity of 170,000 tons / day), Dalian PPP project (50,000 tons / day) and Daiyue project (97,000 tons / day) are expected to contribute to the company's operational performance increment.

The total processing capacity of the merger and acquisition of Shijiazhuang project has been greatly increased to 4300 tons per day. After the completion of the merger and acquisition of the 1200 t / d project in Shijiazhuang, the company has a total handling capacity of 4300 t / d in the waste incineration project.

In 2020, Dejiang (500 tons / day) and Huimin (600 tons / day) will be put into production in the last and second half of the year, while Chengde project (400 tons / day) and Xixiang project (600 tons / day) are expected to be put into production this and next year. The gradual operation of waste incineration projects will become an important driving force for the company's future performance growth. The cooperation between the company and Shanghai Kangheng will help the company to improve its project management, technology accumulation, market development and other aspects in the field of waste incineration.

Investment rating: it is estimated that the company's net profit in 2021-23 will be RMB 382 million, corresponding to PE16/12/9 times. The company has high growth and strong sustainability, maintaining a "buy" rating.

Risk Tip: the risk that the company's project is not as good as expected, and the risk that new orders are not as expected.