Core views:
A high-growth sanitation leader, transforming into a “big city manager” opens a new chapter. As a leader in the field of sanitation services, the company relied on more than 20 years of management experience and customer resources in the municipal sector to successfully achieve the transformation of the “city manager” model from sanitation to urban services and Guangdong to the whole country. The compound revenue growth rate from 2016 to 2020 reached 34.59%. Benefiting from order expansion and epidemic tax incentives, the company achieved net profit of 376 million yuan (+186% year-on-year) in 2020; in addition, the company's gross margin in 2020 could reach 23.9% (+5.5pct year-on-year), and operating efficiency continued to improve.
The scale of orders received is at the forefront of the industry, and there are plenty of on-hand orders to guarantee long-term profitability. The company has now formed a national layout of urban service business with sanitation as the core, and the competitive advantage of orders is remarkable: the amount of new contracts signed in 2020 reached 20.7 billion yuan, and the amount of new contracts signed in the first quarter of 2021 was nearly 8 billion yuan (ranking first in the entire industry). Furthermore, by the end of 2020, considering only projects that have already been signed and the revenue amount has been determined, the number of orders to be executed by the company reached 22.782 billion yuan, corresponding to the estimated confirmed revenue of 2,479/24.45/1,965 billion yuan from 2021 to 2023. The performance boom cycle is expected to continue.
The trend of integrated management of urban services has emerged, and the “big urban manager” has a remarkable first-mover advantage. The policy side puts forward higher requirements for urban governance, and market-based orders are gradually evolving from small amounts and single fields to diversified businesses and the trend of urban and rural integration. As a pioneer in the “city manager” model, the company has successively won bids for comprehensive urban operation projects such as “7.9 billion parking lot operation in Xiangtan”, “3.3 billion urban and rural integration in Duyun”, and “6 billion Baoshan sanitation, cleaning and landscaping maintenance”. Combined with the sinking township market, the company has broad room for growth.
Sanitation leaders have embarked on a new journey as urban stewards, covering “buy” ratings for the first time. The company's 2021-2023 EPS is expected to be 0.82/1.04/1.31 yuan/share, respectively. According to the latest closing price, the 2021-2023 PE will be 21.3/16.8/13.3 times respectively, and high-growth sanitation leaders will accelerate.
Combining the valuation level of comparable companies and the growth rate of the company's performance, the company was given a PE valuation of 25 times in 2021, corresponding to a reasonable value of 20.47 yuan/share, covering the “buy” rating for the first time.
Risk warning. Order acquisition and business expansion fell short of expectations; labor costs were at risk of rising.
