Key points of investment:
A comprehensive service provider for the environmental protection industry, with comprehensive development of five major businesses. As a comprehensive supplier of comprehensive technical solutions in the field of environmental protection, the company's main business covers five major sectors, including municipal water treatment, industrial water treatment, solid waste treatment, natural gas pressure control stations and distributed energy, and construction. Currently, the company is vigorously developing seawater characteristic industries on the basis of consolidating the traditional water treatment sector.
The municipal water treatment business has plenty of orders on hand, and it is necessary to pay attention to the financing situation and construction progress of specific projects. As of June 30, 2018, the company's municipal water supply EPC/PPP orders include: Tai'an Quanwen Scenic Area River Wetland Ecological Park Project, Qinyang City Urban Road Network Construction and Renovation PPP Project, Caoxian County One-Ring Water System Comprehensive Renovation PPP Project, and Liupanshui Shuicheng River Comprehensive Treatment Phase II Project. If subsequent projects are implemented, they will have a positive impact on business revenue in this sector, but it is necessary to consider the financing progress.
The industrial water treatment business is rich in technical reserves. Over the past 15 years, the company has successively acquired KWI, ITN, and SWT, and participated in AuquaSwiss to obtain air flotation technology, seawater desalination membrane technology, low temperature multi-effect seawater desalination technology, nano-plate ceramic membrane technology, etc. The company's Chinese ceramic membrane products entered the Sinopec Puguang Gas Field advanced treatment project for extractive water, reflecting the competitive advantage of the products. The company won the bid for a 50,000 tons/day seawater desalination plant construction project in Kurek Town in 2018, and SWT, a wholly-owned subsidiary, won the bid for Vietnam's Nghison 2 power plant procurement project issued by South Korea's Doosan Heavy Industries, which gave a strong impetus to the expansion of the company's business scale.
It is expected to benefit from the integrated development of the Yangtze River Delta. On June 1, 2018, the Yangtze River Delta Regional Leaders Symposium reviewed and agreed in principle to the “Three-Year Action Plan for the Integrated Development of the Yangtze River Delta Region (2018-2020)”. In '19, the Yangtze River Delta will establish and improve cross-border joint prevention and control mechanisms for Shiusu Lake and Gaoyou Lake, and carry out pollution control in key waters at the mouth of the Yangtze River and Hangzhou, which is beneficial to the business development of the company and its subsidiaries.
Give the company an “increase in holdings” investment rating. It is estimated that the company will fully dilute EPS in 18 and 19 by 0.19 yuan, respectively. Based on the calculation of 8.07 yuan/share on February 28, 2019, the corresponding PE for 18 and 19 will be 42.5 and 36.7 times, respectively. The company's valuation level is too high compared to the same industry. However, considering the company's technical advantages in the fields of municipal water treatment and industrial water treatment, the company was given an “increase in holdings” investment rating.
Risk warning: The company's project construction progress falls short of expectations; accounts receivable continue to increase, repayments slow, and there is a risk of loss of bad debts; there are many interest-bearing debts, increasing financial pressure; overseas business accounts for a high share of revenue.