2020&1Q21 performance is lower than we expected.
The company announced 2020&1Q21 results: 2020 revenue 3.609 billion yuan, year-on-year + 11%; return to the mother net profit 195 million yuan, year-on-year-31% dint 1Q21 income 571 million yuan, year-on-year-10%, return to the mother net profit 46 million yuan, year-on-year-24%, lower than our expectations, mainly due to the impact of the epidemic and old project rebates lower than expected resulting in more impairment losses.
The performance of the environmental protection management business was affected by the epidemic in the first half of the year. 2H20 improved with the resumption of work, with revenue of 3.058 billion yuan in 2020, + 5.1% compared with the same period last year: of which soil remediation business was + 15.5% to 410 million yuan, and water treatment business was + 4.2% to 2.667 billion yuan. The company continues to improve its revenue structure, with 2020 operating income from + 109.3% year-on-year to 339 million yuan, and special technical service revenue from + 22.6% year-on-year to 209 million yuan.
The company's 2020 gross profit margin is year-on-year-1.6ppt to 27.3%, including environmental governance gross profit margin from-2.7ppt to 25.7%, professional and technical services gross profit margin from + 3.1ppt to 41.5% year-on-year, and operating gross profit margin from + 6.2% to 32.9% year-on-year. Operating cash flow continued to improve, from + 121.77% to 232 million yuan compared with the same period last year, mainly due to: 1) pay attention to project payback and improve cash collection capacity; 2) the proportion of operating income increased to 9.4% by 4.4ppt. During the period, the expense rate was relatively stable at 17.8%, of which the management fee decreased from 0.26ppt to 4.92%, and the sales / R & D / financial expense rate increased to 2.16%, 5.35% and 5.33%, respectively.
Business model optimization. At the end of 2020, the company had an order of about 11.782 billion yuan. In addition to the investment amount of the PPP project, the out-hand order is about 6.325 billion yuan, of which EP, EPC and operation orders account for about 96.35%. We believe that the on-hand order is sufficient to ensure the stable growth of the company's performance, and the order structure is optimized, which is conducive to the continuous improvement of the company's cash flow.
Development trend
The introduction of state-owned strategic shareholders, Guanghuan investment continues to increase. According to the company announcement, Guanghuan invested 40 million shares of the transferred company in January and signed a "voting entrustment agreement" with Mr. Wang Shuangfei. Guanghuan cast a total of 97.74 million shares (accounting for 24.09% of the total share capital) and became the controlling shareholder. the actual controller is transformed into the Guangzhou municipal government. In March, the company issued a preliminary plan to issue no more than 122 million shares to Guanghuan, with a further capital increase of 935 million yuan, and state-owned assets continued to increase investment to enhance the company's capital and resources. In terms of business, the company and Guanghuan Investment Co., Ltd. jointly won the bid for Nanning PPP project, in which Guanghuan Investment was responsible for the investment and financing links, making full use of the platform and financing advantages of state-owned enterprises, while the company was responsible for the procurement, installation and follow-up operation of the project, giving further play to its technical and operational management advantages. We believe that Guanghuan Investment and the company are expected to continue to increase coordination in environmental protection business in the future. in addition, the company will also introduce Guangxi Environmental Protection Group as strategic shareholders in 2020 to strengthen Guangxi environmental governance business cooperation. We believe that it is expected to further enhance the competitive advantage and promote the steady improvement of the company's performance.
Profit forecast and valuation
Considering that the order release of the company was lower than expected, the net profit in 2021 was reduced by 33% to 300 million yuan, and the net profit in 2022 was introduced to 380 million yuan. The current share price is 9 times 2021 PE. Maintain the outperform industry rating, due to the cut in earnings forecasts, cut the target price by 24% to 11 yuan, corresponding to 2021, 2022 15 PE, 12 times the current share price has 25% upside space.
Risk: order promotion, the progress of additional issuance is not as expected, financing risk.
