Main points of investment
What happened: we recently invited Kangda Environmental Protection to participate in the medium-term Strategy meeting, at which we exchanged views with investors on several issues of concern.
The decline in share prices was mainly due to market fluctuations and the fundamentals were intact. It is reported that the recent decline in the company's share price is mainly due to the concentrated reduction of some original investors, rather than fundamental factors. At present, the company's share price is 0.70 times higher than the 2017 PE/PB, which has a sufficient margin of safety.
The first-quarter results have a limited impact on the whole year, and the guidance at the beginning of the year is still maintained for the whole year. The net profit of domestic Kangda debt Q1 rose 2.11% compared with the same period last year, but the impact on the whole year is limited because the first quarter is usually the off-season for environmental protection companies and accounts for a relatively low share of the annual results. The company maintains its guidance of 30% growth for the full year at the beginning of the year.
PPP project has a long start-up cycle and pays more attention to order reserve at this stage. The start-up cycle of the PPP project is longer than that of BOT, and the company believes that the conversion rate of PPP orders is relatively low in the short term. It is expected to achieve about 800 million yuan in revenue in 2017, most of which will be confirmed in the second half of the year. At this stage, we pay more attention to the scale and quality of new orders, and sufficient order reserves will form a strong support for the company's long-term sustainable growth.
The industry attribute determines the financing ability, and the PPP project funds are not affected by the "money shortage". As a public utility industry with heavy assets and government endorsement, companies do not have difficulties in financing at present, and financing costs will rise on the basis of last year due to liquidity tightening. It is expected that the financial cost for the whole year will increase by 5% Mel 10%, but it will not affect the capital requirements of the PPP project.
In the future, we may consider continuing to boost stock prices by increasing dividends. Due to the long-term undervaluation of the stock price, the company is also considering whether to increase the dividend, such as increasing the dividend payout rate from the current 10% to 30%. The economic cost is acceptable, and the boost to the stock price needs to be further evaluated.
Investment suggestion: we forecast that the company's net profit in 2017 and 2018 will be 450 million RMB 602 million respectively. The current stock price has a sufficient margin of safety, the conversion rate of PPP project is expected to increase in the second half of the year, and the annual performance can achieve relatively rapid growth, rising to the "buy" rating, with a target price of HK $2.49.
Risk hint: the PPP project starts slowly, the local financial ability to pay decreases, and the RMB depreciates.