According to the company's annual report for 2020, the company achieved an operating income of 3.393 billion yuan, an increase of 49.93% over the same period last year, and a net profit of 614 million yuan, an increase of-1.6% over the same period last year. After Chengfa Environment disclosed the annual report that exceeded market expectations, the market paid more attention to the operation of the company's new projects. We now put forward our own views on the investment logic and future points that the market pays attention to.
1) the highway free of charge under the epidemic affected the performance in the first half of the year, and the company's environmental protection business exceeded its annual target the highway toll business was affected by COVID-19 's epidemic situation. According to national regulations, the free passage policy was implemented from February 18 to April 30. Although the company's highway business is in good condition after the resumption of tolls on May 6, the company's road traffic business revenue still dropped by 24.81% for the whole year. In the case of the impact on the highway business, the company launched the environmental protection business, paid close attention to the waste incineration project construction, all the environmental protection energy executives of the company sank to the front line, contracted the project construction, and established a standardized recruitment process at the same time. Innovative centralized procurement, joint procurement model to ensure the smooth progress of project construction. The company realized the synchronous construction of 21 projects such as Anyang, Hebi, Luohe and Kashgar in 2020. the smooth progress of a large number of project construction work will make the company usher in the peak period of operation in 2021-2023, and the proportion of the company's environmental protection operation will increase year by year in the future. it has become the main growth point of the company's performance.
2) the excellent operating indicators of the new waste incineration project have dispelled investors' concerns about the company's operating capacity. After a major asset exchange in 2017, Chengfa Environment began to promote the company's strategy of taking highway business as ballast stone and environmental protection business as the starting point. From 2018 to 2020, the company continued to obtain waste incineration projects in the province through bidding and other means. as the company had no experience in the construction and operation of waste incineration projects, the market was more worried about the commissioning and operation of the project after the company accepted the order. The company verified the operating capacity of the company in this reporting period. The first Jiyuan garbage power generation project put into production reached 405 kilowatt-hours, and the plant power consumption rate was controlled at about 12%, far exceeding the average level of the industry.
3) what is the competitive advantage of the company?
The actual control of the company is Henan SASAC, backed by the controlling shareholder Henan Investment Group, and the company has an absolute advantage in business development in Henan Province. in 2020, the company won the bid for seven waste incineration power generation projects, such as Jiaozuo, Puyang and Huaiyang. In particular, it has successfully won the Jiaozuo vein Industrial Park project, which is the largest in China this year, with the most fierce competition and obvious demonstration effect. Firmly established the leading position of the environmental protection industry in the company's province. At the same time, compared with other pure waste incineration enterprises, the company has high-speed business to provide ballast stone to provide steady cash flow, which can provide 1.2 billion of the annual operating cash flow for the company to support the capital expenditure of the waste incineration sector. At present, with the stricter supervision of environmental protection and the increasing difficulty of getting state subsidy, the reshuffle period of enterprises in the waste incineration industry is about to begin. With the advantages of shareholder background, operation experience and capital, the company is expected to seize the industry trend and gain an accelerated increase in its market share through bidding or epitaxial mergers and acquisitions.
Profit Forecast: the estimated net profit of the company is 1.61 billion yuan, 1.30pm 1.554 billion yuan, EPS 1.81, 2.07, 2.42 yuan, corresponding to 2021.04.23, closing price 10.33 yuan, PE is 6X/5X/4X, respectively.
Maintain the company's "highly recommended" rating.
Risk hint: industry policy change; project progress is not as expected.