Short-term performance is under pressure
Bosch released its annual report of 3.6 billion yuan (year-on-year + 11%), net profit of 195 million yuan (- 31%), lower than Huatai forecast (232 million yuan), 21Q1 income of 570 million yuan (- 10%) and net profit of 46 million yuan (- 24%). In the short term, impairment of receivables and financial expenses are a drag on the company's profitability. In the medium and long term, the benefits of the state-owned assets strategy of Guangzhou and Guangzhou are expected to show gradually, which is reflected in three aspects: the integration of platform resources, the acquisition of high-quality orders and the reduction of financing costs. It is estimated that the EPS for 21-23 will be 0.75 plus 1.02 EPS, and the target PE for 2021 will be 14x, with a target price of 10.50 yuan, maintaining the "overweight" rating.
Impairment and financial expenses are a drag on earnings, and operating income has increased significantly
In 2020, the company's revenue increased, but the return net profit declined. Due to the impact of the epidemic, the project delivery schedule was delayed and the project was completed at the end of the year, resulting in a 55% increase in 20Q4 revenue compared with the same period last year. However, due to the increase in the impairment of accounts receivable and contract assets (170 million yuan in total in 2020, an increase of 110 million yuan compared with the same period last year) and the increase in financial expenses, the company's return net profit performance is not good. In 2020, the company's water treatment income is 2.6 billion yuan (year-on-year + 4%), soil remediation income is 410 million yuan (year-on-year + 16%), and operating income is 340 million yuan (year-on-year + 109%). The company's PPP project in hand has gradually entered the operational stage, superimposing the newly won sanitation and sludge disposal orders, the operating income is expected to increase year by year.
In-hand orders increased compared with the same period last year, and the entry of state-owned assets from Guangdong and Guangzhou brought medium-and long-term benefits. As of mid-April 21, the company had orders on hand of 11.78 billion yuan (end-April 20: 10.37 billion yuan), including 5.46 billion yuan for PPP projects (6.17 billion yuan at the end of April 20), 3.72 billion yuan for EP/EPC orders (2.84 billion yuan at the end of April 20), and 2.38 billion yuan for operational orders (1.14 billion yuan at the end of April 20). EP/EPC orders account for 78 per cent of water treatment, 12 per cent of soil remediation and 10 per cent of clean chemical production. In 2020, Guangxi Environmental Protection Industry and Investment Group (unlisted) became the company's state-owned strategic shareholder, tamping the company's business foundation for comprehensive environmental management in Guangxi; Guangzhou Huantou Investment Group (unlisted) became the company's controlling shareholder and real controller. The first cooperation won a big order (1.18 billion yuan for the rural water treatment project in Wuming District, Nanning). We are optimistic about the sustainability of the company's high-quality orders.
Adjust profit forecast and target price
Considering that the company has abundant orders on hand and the state-owned investment platform brings incremental orders, the company's operating performance is expected to rebound, but it is still faced with impairment and financial pressure in the short term to adjust the profit forecast. It is estimated that the operating income of the company in 21-23 years will be 100 million yuan in 44-51-56, and the net profit returned to its mother will be 516 million yuan (before 21-22 years: 398 million yuan), and the corresponding EPS will be 0.75 pound 1.02 billion yuan. With reference to the average PE of comparable company's Wind consensus expectation in 2021, and taking into account the continuing impact of impairment and financial expenses, a certain valuation discount is given. The 2021 target PE 14x, corresponding to the target price of 10.50 yuan (the previous value is 14.60 yuan), maintains the "overweight" rating.
Risk hint: the progress of the project is not as expected, and the number of new winning projects is not as expected.
