Report summary
The company's performance increased by 238% in 2017. Pioneering Environment recently released full-year results for 2017.
The rapid growth in performance is in line with our previous expectations. Driven by the acceleration of domestic project commencement and operation, the company's revenue increased 29% year-on-year to 3.5 billion RMB. Among them, project construction revenue increased 283% year-on-year to 750 million RMB, accounting for 21.55% of the company's revenue. The company's gross profit increased 26.6% year over year to 1.01 billion RMB. The gross profit margin was 28.8%. As the share of construction revenue increased, the gross margin was basically the same as in 2016. With the rapid development of domestic projects, net profit increased 238% year-on-year to 148 million RMB. According to estimates of the commencement and operation progress of the company's domestic projects, the company will maintain relatively rapid growth until 2020.
The New Zealand project continues to be the company's main source of profit. The revenue and profit of New Zealand's waste treatment and energy conversion business during the year were RMB 2.32 billion and RMB 230 million respectively, contributing 66% of the company's revenue. The company owns 51% of the New Zealand business, so the New Zealand business contributed RMB 118 million to the company's net profit, accounting for 80% of the company's net profit. BCG NZ Group is New Zealand's largest waste management service provider, with a market share of over 30%, and has established a nationwide network that vertically integrates local waste systems. As a basic mature business, the New Zealand business has entered a state of steady growth in operation, contributing stable profits and cash flow to the company and laying the foundation for rapid growth in the company's performance.
The project reserves are abundant, laying the foundation for rapid development in the next 2 to 3 years. By the end of 2017, the company had prepared 52 domestic projects, including 17 waste incineration power generation, 5 landfills, 6 anaerobic treatment, 13 collection, storage and transportation, 5 hazardous waste treatment projects, etc., with a total investment of RMB 13.7 billion and a design annual garbage disposal volume of 11.5 million tons. Among them, 20 new projects were obtained in 2017, with an investment scale of RMB 3.95 billion, and designed to dispose of 4.64 million tons of household waste per year. As the sole solid waste listing platform of the Pioneer Group, the solid waste business layout is clear. It focuses on developing waste incineration power generation as the core source of profit, and extends the sanitation business and integrated collection, storage and transportation business from the waste incineration power generation industry chain to the upstream. It is expected that in the future, more than 2/3 of the company's investment will be invested in waste incineration power generation and related industry chain businesses; anaerobic treatment business and strategically developed hazardous waste projects will basically split the remaining 1/3 of the company's investment. The company has sufficient reserves of ongoing projects and will start construction one after another in the next 2 to 3 years, and the company's key markets, such as Jiangxi and Henan, have large market potential, and can obtain more high-quality new projects. As the commencement period and operation period of domestic solid waste projects arrive one after another, domestic business will develop rapidly in the next 2 to 3 years.
Investment advice: The company's net profit in 2017 was RMB 148 million, a sharp increase of 238% over 2016, and the current market value is HK$4.07 billion, corresponding to 21.9 times the 2017 PE. The company's performance is expected to enter a stage of rapid growth in 2018-19, and we expect net profit to continue to record significant growth in 2018.
When we estimated the company's future profit growth, we did not consider the company's further acquisition of the remaining 49% of the company's shares in the New Zealand project.
Risk warning: The commencement and commissioning of waste incineration power generation projects is slower than expected; the collection and transportation volume of anaerobic treatment projects is lower than expected; and the commissioning of hazardous waste projects is slower than expected.
