Core ideas:
Firmly hold the monopoly position in the province and enter the national market strongly.
The company has a high market share in Yunnan Province. with its first-mover advantage, high-quality technology and resources, the company forms a monopoly in the water industry in Yunnan Province, and its stable relationship with the local government leads to opportunities for acquisition and development, which expands the monopoly advantage. In 2013, it began to distribute the national market, and through acquisitions and mergers and acquisitions, it has gradually opened up markets in Xinjiang, Shandong, Jiangsu, Guizhou, Guangzhou and other places, while actively looking for environmental protection water projects in Southeast Asia and Taiwan.
Yunnan Province gathers more than 900 billion PPP resources, innovative financing mode helps the development of the water sector. In the PPP model, the public sector and enterprises can reasonably distribute project risks at the initial stage of the project, introduce advanced technology and management experience, reduce the risks of contractors and investors, improve the possibility of successful project financing, shorten the work cycle, reduce project costs, and be more profitable than BOT. The total investment of PPP water project approved by the company in 2015 ranks among the top four, and the addition of the new financing model will be beneficial to the development of the company's water sector and lead to a new round of performance growth.
The water sector is growing steadily, and the new army of solid waste treatment business is emerging.
The continuous acquisition and operation of BOT, TOT and BOO projects and the continuous increase of projects under construction have provided considerable impetus for the steady increase in operating income and construction income. The company will continue to expand its franchise projects in the future, which will ensure the steady growth of revenue from the sewage treatment and water supply division. The new solid waste treatment business contributed 12.51% of the revenue in the first half of 2016, while the company plans to upgrade sewage treatment equipment, invest in the construction of waste power generation facilities, and upgrade the "big water".
Membrane production plant alleviates external technology dependence and injects new power membrane production plant operation into the company's future growth can improve processing efficiency, reduce production costs, and meet the internal demand of franchise and the expected external demand of own EPC and equipment sales.
Profit Forecast and Investment rating
On December 29, 2016, the closing price of Yunnan Water (6839.HK) was 4.09 Hong Kong dollars, equivalent to 3.67 yuan. We forecast that the company's price-to-earnings ratio for 2016-2018 will be 12.1,9.7, 7.6 yuan and EPS will be 0.335 yuan, 0.419 yuan, and 0.538 yuan. Give a "buy" rating risk tip:
The progress of the project is lower than expected, and the price of the franchise project cannot be adjusted with the increase of cost; the market environment of Hong Kong stock and A stock is different, the investment style is different, and the exchange rate risk between RMB and Hong Kong dollar is different.