The long-term value of the resources of the north-controlled cities can be expected.
We are optimistic about the long-term value of Beijing control city resources for the following reasons: 1) the company is mainly engaged in sanitation services and hazardous waste disposal business, which has a leading position in the industry; 2) its actual control is Beijing Water Control Group, and the synergy between the two will promote the growth of the company. 3) the company develops sanitation services and hazardous waste disposal in parallel to create a "one-stop solution" service provider brand, which helps to achieve stable cash flow performance and reduce capital expenditure; 4) the company implements intelligent operation and fine management by building an intelligent sanitation platform to support gross profit margin to remain stable. We estimate that the resource of the northbound city 2021, 2022, the EPS will be HK $0.13, 0.17, 0.21 in 2023, and the target price will be HK $1.41, with a target price of HK $1.41, which is 10.9 times the forecast PE for 2021. For the first time, coverage gives a "buy" rating.
Benefiting from the expansion of the sanitation service market, the company's advantages are gradually released. According to our estimates, the size of China's sanitation service market in 2020 is 327.5 billion yuan, with third-party operations accounting for about 55 percent. The business scale is expected to expand from 178.7 billion yuan in 2020 to more than 360 billion yuan in 2025, with a CAGR of 21 percent. With the expansion of business scale in the future, the company's project acceptance advantages and high profit margins are expected to be further released. We expect sanitation service revenue of HK $3.49 billion / 4.45 billion / 5.6 billion in 2023, a year-on-year increase of HK $24max.
Hazardous waste treatment business is mainly driven by ecological protection.
In the context of the new solid waste law (which came into effect in September 2020) and local policies that raise the barriers to enter or continue to work in the hazardous waste disposal industry and drive demand, we believe that the company's market share is expected to increase. With the expansion of the company's future production capacity and the improvement of capacity utilization, the operating performance may be further improved.
The company's hazardous waste disposal sector is expected to expand, and we expect revenue from hazardous waste disposal in 2021, 2022, 2023 to be HK $742 million / 838 million / 927 million, up 11% year-on-year.
For the first time, the coverage gives a "buy" rating, with a target price of HK $1.41. We expect the BeikingCityResource 2021x2022 to have an income of HK $4.46 billion / 5.52 billion / 6.77 billion in 2023, a net profit of HK $465 million / 599 million / 772 million, an EPS of HK $0.13 and an EPS of HK $0.21, corresponding to the forecast PE of 7.7ppm, 6.0xb, 2021x2022x2023. In view of the company's low liquidity in the Hong Kong stock market, we value the stock at 10.9 times the 2021 forecast PE, which is 13.6 times the average of comparable companies. There is a 20% discount to the 2021 forecast PE (according to Wind's consensus expectation), with a target price of HK $1.41. For the first time, coverage gives a "buy" rating.
Risk hints: the marketization process of sanitation industry is slower than we expected; competition intensifies; risks related to the implementation of hazardous waste disposal projects.