2019 performance is in line with our expectations
The company announced 2019 results: revenue of HK $5.551 billion, 16% year-on-year; net profit of HK $833 million, up 23% over the same period last year; and earnings per share of HK30.1 cents (diluted), in line with expectations. The company paid a dividend of 7.48 Hong Kong cents per share for the whole year, an increase of 31% over the same period last year.
From a sub-business point of view, 1) benefiting from the increase in construction volume, construction revenue increased 11% year-on-year to HK $3.008 billion; 2) benefited from the increase in the volume of sewage disposal projects (up 23% to 4.28 million cubic meters per day at the end of 2019), and the water prices of 10 waterworks were increased by 4% per cent respectively. 61%, the company's operating income increased by 25% to HK $1.548 billion.
The profitability is stable and the expenses are well controlled during the period. The company's gross profit margin / EBITDA rate in 2019 was 34.1% and 29.7% respectively, which was basically the same as in 2018. Administrative and operating expenses were well controlled, the rate decreased by 0.6ppt to 8.6% compared with the same period last year, the financial expense increased by 23% to HK $335 million, and the financial expense rate increased by 0.3ppt to 6% over the same period last year, mainly due to the increase in interest expenses by issuing bonds during the reporting period.
Trend of development
Steady increase in production capacity, while increasing project return requirements, drive the company's future performance growth.
We estimate that the company's current reserve capacity of sewage treatment / water supply / reclaimed water projects is 20% of that of the projects that have been put into operation. During the reporting period, the scale of the new sewage treatment / water supply / reclaimed water project was 65.5 million cubic meters per day, and the company raised the project return requirements, we expect that with the gradual commissioning of the company's production capacity and the increase in project profitability, it is expected to lead to steady growth of the company's business.
Profit forecast and valuation
As the company is building capacity, we have raised our profit forecast for 2019 by 3% to HK $1.016 billion, with an estimated profit of HK $1.215 billion in 2021 and a compound growth rate of 20% in 2020-2021. The current share price corresponds to 4.8amp 4.0x 2020-2021 Pmax E. Keep the "outperform industry" rating of Hong Kong stocks and the target price of HK $2.60 unchanged, corresponding to 7.2pm 6.2 times 2020-2021. There is 52% upside compared to the current share price.
Risk
The progress of the project is not as expected, and the strict environmental protection increases the cost of the company.