The performance of comprehensive environmental service providers in the Central Plains has increased steadily. In 2007, the company achieved backdoor listing through asset restructuring with White Pigeon shares. In recent years, on the basis of sewage treatment and heating, the company has extended its business to reclaimed water reuse, construction waste, village sewage, watershed treatment, sludge treatment, environmental protection equipment manufacturing, landscaping and other fields. it has become a comprehensive environmental service provider covering "large public use, great environmental protection and large ecology". At present, the scale of sewage treatment is 153 million tons per day, the utilization of reclaimed water is 200,000 tons per day, and the scale of water supply is 100,000 tons per day. The scale of sludge disposal is 500t / d and the heating area is 4 million square meters. The major shareholder of the company is Zhengzhou Public Utilities Group, and the actual controller is Zhengzhou Municipal Government, with a shareholding ratio of 71.16%. The company has a high degree of equity concentration.
In the past 12 years, the company's revenue increased by 4.43 times, net profit grew at an average annual compound growth rate of 20.53%, and the performance increased steadily.
Investment in environmental protection in Henan Province has accelerated, and the 68.2 billion market for water environment has been gradually released. The per capita sewage treatment capacity of Henan Province is 0.16 tons / day, ranking 22nd in the country, lower than the national average level of 0.22 tons / day. The construction of sewage treatment facilities is seriously insufficient. In 2017, the total investment in environmental pollution control in Henan Province was 64.13 billion yuan, an increase of 78.24% over the same period last year, and its proportion in GDP also increased to 1.44%. In recent years, investment in environmental protection in Henan Province has accelerated. We estimate that by 2020, the market space for new sewage treatment plants, watershed treatment and black and smelly water bodies in Henan Province will be 100,254,32.8 billion yuan respectively, totaling 68.2 billion yuan. If we add rural sewage treatment, industrial wastewater and so on, the market space will be even larger. In the next few years, the water environment market in Henan Province will be gradually released.
Sewage operations lay the foundation, and PPP projects bring performance flexibility. At present, the company has a sewage treatment scale of 1.53 million tons per day, and a sewage treatment capacity of 48,000 tons per day under construction (+ 31.37%). At the same time, the sewage treatment fee in Zhengzhou is in the middle of the country and still has room to rise, and the sewage treatment business will grow steadily in the next two years. In addition, the company has received a total investment of 10.652 billion yuan in PPP and solid waste projects since 2017, and Q3 has 1.973 billion yuan in hand by 2019, with an asset-liability ratio of only 40.30%. There is still a lot of financing space to support project facilities, and the gradual landing of PPP projects will bring performance flexibility to the company.
The progress of the reform of state-owned enterprises has been accelerated, waiting for the injection of assets, with long-term investment value. In August 2018, the company was included in the list of "two hundred enterprises" in the reform of state-owned enterprises, and it is expected that the introduction of war investment, market-oriented incentives, asset injection and other specific aspects of state-owned enterprise reform will be accelerated. Henan assets has gradually increased its holdings of the company's shares from the secondary market, and has now become the second largest shareholder of the company with 4.95% of the equity. Major shareholder Public Utilities Group and purification Company promised to inject its Zhengzhou New area sewage treatment Plant (1 million tons / day) and Shuangqiao sewage treatment Plant (600,000 tons / day) into listed companies by July 31, 2020. The flexibility of the company's sewage treatment scale is 104.58%, waiting for asset injection. At the same time, compared with peers, the company's financial stability, the current PB of only 1.04, with long-term investment value.
Profit forecast and investment rating: maintain the "overweight" rating. The company's sewage treatment business is growing steadily, with increased performance flexibility in hand sewage treatment plants and PPP projects, and strong asset injection expectations. in addition, the company is financially sound, with a PB of only 1.04, with long-term investment value. As the company's four sewage treatment plants raised sewage treatment fees due to the implementation of the Jialu River effluent standard, we raised the company's profit forecast, while ignoring the impact of asset injection on the company's performance, the company's 2019-2021EPS is expected to be 0.52,0.45,0.49 yuan respectively, and the corresponding share price PE is 12, 13, 12 times, maintaining the company's "overweight" rating.
Risk tips: the risk of the decline of sewage treatment charges; the risk that the expansion and promotion of the PPP project is not as expected; the risk of a substantial increase in accounts receivable; the risk of asset injection uncertainty; interest rate upward risk; macroeconomic downside risk.