The performance of the annual report increased steadily. The company disclosed that its annual report for 2017 showed operating income of 1.614 billion yuan, an increase of 10.35% over the same period last year, net profit of 1.067 billion yuan, an increase of 109.83%, net profit of 1.024 billion yuan, up 11.82% over the same period last year, and basic earnings per share of 0.72 yuan per share, an increase of 10.83% over the same period last year. The company is the third largest shareholder of GF Securities Co., LTD., holding 10.33% of GF Securities Co., LTD. 's shares by the end of 2017. the company adopted the equity method to confirm the investment income of 888 million yuan for GF Securities Co., LTD. 's investment in 2017. Excluding GF Securities Co., LTD. 's investment income, the company's net profit in 2017 was 178 million yuan, an increase of 19.26% over the same period last year. The company's net operating cash flow in 2017 was 564 million yuan, an increase of 30.61% over the same period last year, and the rate of return on net assets (weighted) was 9.15%, an increase of 0.43% over the same period last year. The company announces the profit distribution plan and pays a cash dividend of 2.2 yuan (including tax) for every 10 shares.
The gross profit margin has declined slightly, the expenses have been properly controlled, and the three rates have all declined. The company's comprehensive gross profit margin in 2017 was 31.15%, down 1.54 percentage points from 2016. The company's sales expense rate was 3.77%, down 0.3% from the same period last year; the management expense rate was 9.68%, down 1.56% from the same period last year; and the financial expense rate was 5.97%, 3.5% lower than the same period last year. The company repaid maturing corporate bonds in 2017 and received discounted interest income from financial projects, reducing interest expenses.
The business of waste incineration, power generation and engineering installation is developing rapidly. According to the announcement, the company's total water supply accounts for about 80% of Zhongshan City, and the total amount of sewage treatment accounts for about 35% of Zhongshan City. In 2017, the company produced 452 million tons of tap water, an increase of 2.72 percent over the same period last year, sales of 396 million tons, an increase of 3.48 percent over the same period last year, 108 million tons of sewage and wastewater treatment, an increase of 5.08 percent over the same period last year, and power generation of 119 million kilowatt hours for garbage treatment, an increase of 22.81 percent over the same period last year. 99.994 million kilowatt-hours, an increase of 29.93 percent.
The income of the company's waste disposal and power generation business and engineering installation business grew rapidly, contributing 69.277 million yuan and 302 million yuan respectively, an increase of 28.32% and 33.93% respectively over the same period last year. The company's Tianyi energy project has the qualification of franchising waste incineration power generation and landfill leachate treatment, which is one of the three comprehensive garbage treatment bases in Zhongshan City. According to the announcement, the first and second phases of the project cover an area of about 80,000 square meters, with a garbage disposal capacity of about 970t / day, and the third phase of the project to be completed covers an area of about 56000 square meters and a garbage disposal capacity of about 1200 tons / day. it is expected to effectively enhance the company's solid waste treatment capacity.
The incentive is gradually improved to stimulate the development vitality of the company. The company announced the stock option incentive plan in December 2017, which intends to grant 14.75 million stock options to the company's directors, executives and core backbone at an exercise price of 10.82 yuan per share. The conditions for exercising the options are closely related to the company's performance:
The net profit of deducting non-returning mother from 2019 to 2020 is not less than 1.04 billion yuan, 1.06 billion yuan and 1.1 billion yuan respectively, and the revenue is not less than 1.9 billion yuan, 2.1 billion yuan and 2.4 billion yuan respectively. After deducting the investment income confirmed by shareholding GF Securities Co., LTD., the investment income is not less than 155 million yuan, 175 million yuan and 215 million yuan respectively.
According to the company's announcement in March, the controlling shareholder, some senior executives and some directors and executives of the company have completed the increase of 5.7988 million shares of the company, binding senior executives and interests, demonstrating confidence in the development of the company, and the incentive mechanism for senior executives has been further improved.
Industrial operation + capital operation two-wheel drive, focus on environmental protection strategy is gradually clear. The company announces the strategic planning outline for 2018-2020. according to the strategic thinking of "industrial management + capital operation", the company focuses on the core business of "environmental protection water affairs", actively does a good job in stock business, and explores the development of incremental business. The company formulates the "12345-year Plan" development strategy: changing from unrelated diversified development to "centralization and ecologicalization", adhering to the development model of two-wheel drive of industrial operation and capital operation, and creating three major sectors of environmental protection, large investment and auxiliary business. enhance the four capabilities of project acquisition, capital output, model replication and remote control Implement five major projects: optimization and promotion of strategic management, organizational control, financial management, talent development, and technological innovation. According to the company's 2018 business plan, the company will increase its foreign investment in 2018 and actively participate in the competition for comprehensive water environment treatment, hazardous waste disposal, garbage transfer, sanitation, sludge treatment, kitchen treatment and other projects; the company will make new breakthroughs in off-site projects and equity investment, such as mergers and acquisitions of high-quality sewage, water supply, solid waste and hazardous waste treatment projects. In 2017, the company announced the water environment integration project (Evergrande Phase II flood discharge channel water environment improvement project), the winning bid amount is about 40 million yuan, which is a milestone in the company's development history, reflecting the rapid and effective implementation of the company's strategy. At the same time, the company announcement will actively participate in the equity acquisition of listed interbank companies or the PE investment of high-quality enterprises that are to be listed, and invigorate the company's financial assets through multiple channels.
Investment advice: the company's operating business income is stable, bringing a sustained and stable cash flow, and as the third largest shareholder of GF Securities Co., LTD., obtained a sustained and strong investment return. The company relies on the shareholder state-owned enterprise Zhonghui Group, which is expected to bring the advantage of regional project resources. Fosun Group, the second largest shareholder of the company, has a forward-looking investment vision and global industrial resources, as well as the organic interaction and coordination between industry and capital, investment and operation. to lay a solid foundation for expanding and strengthening the core business of "environmental protection + water affairs" in the future. Optimistic about the company's "industrial operation + capital operation" two-wheel drive development, it is estimated that the EPS from 2018 to 2020 is 0.80,0.89,0.99 yuan, corresponding to PE 11.7x, 10.5x and 9.5x, giving the company a "holding-A" rating, with a six-month target price of 10.5yuan.
Risk hint: the project is not as advanced as expected, and the environmental protection policy is not as expected.