Event

Energy-saving Guozhen releases 2020 annual report

Energy-saving Guozhen released the 2020 annual report that the company achieved a cumulative operating income of 3.869 billion yuan in 2020, a decrease of 7.21% over the same period last year. The net profit returned to its mother was 331 million yuan, an increase of 1.55% over the same period last year, and the corresponding diluted EPS was 0.48 yuan. The company's weighted average ROE was 9.08%, down 2.77% from a year earlier.

Brief comment

Rapid growth of operating income, leading to an increase in gross profit margin

The company has long been committed to the comprehensive utilization and development of water resources, serving more than 20 provinces, municipalities and autonomous regions in China, and the business plate mainly covers the comprehensive treatment of urban and rural water environment and industrial wastewater treatment. The company's business income can be divided into two types: engineering orders and operation orders. in 2020, the company completed 198 engineering orders, with a confirmed income of 1.851 billion yuan, a decrease of 28.73% over the same period last year, which was caused by the delay of the project schedule caused by the epidemic. The total revenue of operating orders reached 1.808 billion yuan, an increase of 31.49% over the same period last year, which was caused by the continuous commissioning of the company's operational projects. The share of operating income with higher gross margins increased, driving the company's gross margin up by 4.55 pct to 29.44%.

With the rapid expansion of production capacity under the light asset mode, the financial pressure is expected to reduce the company's early layout of industrial wastewater, and gradually grow into a domestic sewage treatment leader.

By the end of 2020, the scale of the company's sewage treatment plant has reached 5.7 million tons / day, of which 370,000 tons / day is under construction. In recent years, the company has rapidly increased its sewage treatment capacity in the light asset mode of trusteeship operation. at the end of the reporting period, the company has put into production capacity of 5.33 million tons per day, of which the scale of trusteeship operation is 1.82 million tons per day, accounting for 34.15% of the production capacity put into operation.

Under the managed operation mode, the company does not have to bear the pre-construction cost of the sewage treatment plant, thus significantly reducing the financial pressure brought about by capacity expansion. At the end of 2020, the company's asset-liability ratio was 71.74%, down 2.36 pct from the same period last year.

On November 20, 2020, Guozhen Group successfully transferred part of its shares to China Energy Conservation Group, and after the transfer was completed, China Energy Conservation became the controlling shareholder of the company. at the same time, SASAC became the actual controller of the company. As of 2020, the Central Water treatment capacity of China Energy Conservation Group is about 7 million tons per day. In order to avoid competition in the industry, China Energy Conservation Group will most likely inject these assets into listed companies in the future. Considering the company's current high asset-liability ratio, we believe that China Energy Saving Group will adopt the trusteeship operation mode to entrust this part of the water assets to the company operation, and the company's water operation capacity is expected to be further enhanced.

Operational assets are expected to continue to grow, and energy-efficient Guozhen "buy" rating companies are expected to rapidly expand operational water assets using the traditional BOT model and the light asset model of escrow operations. Nine new operational orders were added during the reporting period, reaching 5.33 million tons per day, an increase of 10.54 percent over the same period last year. The ownership of China Energy Conservation is expected to have a positive impact on the company in many aspects. On the one hand, the company is expected to transfer the water assets of China Energy Conservation Group in the light asset mode, on the other hand, the state-owned capital background will help the company to obtain follow-up orders and reduce financing costs. We estimate that the return net profit of the company from 2021 to 2023 is 4.22,4.85 and 549 million yuan respectively, and the corresponding EPS is 0.60,0.69 and 0.79 yuan respectively.

Rating.

Risk hint: the production of the project under construction is not as expected, and the production capacity of the company's operating assets is not as expected.