\u3000\u3000 Zhejiang Heda Technology Co.Ltd(688296) (688296)
Event overview
1) in order to further strengthen the leakage control of public water supply network and improve the utilization efficiency of water resources, the general office of the Ministry of housing and urban rural development and the general office of the national development and Reform Commission recently issued the notice on strengthening the leakage control of public water supply network (hereinafter referred to as the leakage control notice), This paper defines the goal of controlling the leakage rate of urban public water supply network within 9% by 2025, and puts forward five tasks, including implementing the reconstruction project of water supply network, promoting the zoning measurement project of water supply network, promoting the pressure regulation project of water supply network, carrying out the intelligent construction project of water supply network and improving the management system of water supply network. The leakage control of water supply network is the core business and flagship product of Zhejiang Heda Technology Co.Ltd(688296) . Based on the previous series of policies, the leakage control notice once again emphasizes the target of 9% leakage rate, and clearly puts forward that the central budget funds should give appropriate support to the leakage control projects of public water supply network in the pilot areas, which undoubtedly brings direct policy benefits to the company.
2) in mid January, Zhejiang Heda Technology Co.Ltd(688296) voluntarily disclosed the bid winning announcement of the project, and successfully won the bid of “Huzhou water supply intelligent construction project – Huzhou Water Group Co., Ltd. integrated management digital platform project”, with a bid winning amount of 36.118 million yuan. It is planned to complete the construction and online test by the end of September 2022. The preliminary acceptance of the project will be carried out before the end of December, and the final acceptance will be completed after 6 months of trial operation. The project is a pilot project for Huzhou water group to build smart water big data and integrated management platform, reduce pipe network leakage, improve the group’s fine management ability and service level, and build digital application scenarios with the help of new generation information technologies such as big data, cloud computing and artificial intelligence. The successful winning of large project orders has made a good start for Heda’s performance this year. In the future, it will further strengthen the company’s industry reputation and improve its business undertaking ability. Zhejiang Heda Technology Co.Ltd(688296) is an excellent information and intelligent comprehensive service provider in China’s water industry. It deeply cultivates water supply, drainage, water conservancy, agricultural and drinking water and other links, integrating software and hardware R & D, production and sales. Driven by policies and orders, Heda starts from reducing the leakage rate and empowers smart water with science and technology based on the core competence of software. We believe that the main highlights of the company are as follows:
Software capability has become the core competitiveness of the company
Computer software technology started and has been deeply engaged in water informatization for more than 20 years. Unlike many water information service providers that started with the production and sales of hardware meter valves, Heda started with software at the beginning of its establishment in 2000. At the beginning, it mainly developed and produced four remote systems with computer software as the core for water supply network. From 2002 to 2010, the company has successively obtained the software enterprise certification and hydrological informatization license, and the SCADA software products with B / S structure have been widely recognized in the industry. In 2015, the company specially established Shanghai Smart Data Technology Co., Ltd., which is committed to the R & D and development of hydraulic model and data algorithm, and specializes in providing solutions such as pure software pipe network modeling, big data early warning and pipe network leakage positioning. In recent years, Heda has been selected into the key software enterprises in the national layout and the software core competitiveness enterprises in Zhejiang Province (innovative), and its software products have been shortlisted in the first edition of the Guiding Catalogue for application and promotion of software products in Zhejiang Province in 2021. Software capability is at the core of the company’s overall solution. Software system is the core of Heda providing water affairs information system services. Intelligent sensing terminal is the system component, and its core is embedded software. In 2020, the sales revenue of the company’s water management software system was 49012500 yuan, with a year-on-year increase of 59.32% and a gross profit margin of 65.5%. Its proportion in the total revenue continued to increase. The water management system with software as the core effectively improved the profitability of the company. The company’s intelligent sensing terminal is a software and hardware integrated product with embedded software as the core and hardware equipment as the carrier, combined with operation software and equipment management software. Its core functions are realized through embedded software. The company attaches great importance to software research and development. According to the prospectus, the company has independently developed 14 core software technologies and has CMMI software maturity level 5 certification.
Reducing leakage brings good development opportunities for the company
The water group has a large space to reduce the leakage rate and remarkable economic and social benefits. Leakage rate refers to the ratio of water leakage of pipe network to total water supply. It is an important index to measure the water supply efficiency of water enterprises and the effectiveness of national water saving. China’s water supply network has serious leakage. According to the statistical yearbook of urban construction in 2019 released by the Ministry of housing and urban rural development, the leakage volume of public water supply networks in more than 600 major cities in China in 2019 was 8.164 billion cubic meters, with an average leakage rate of 14.12%, which is higher than the urban level of developed countries, and there is still much room for decline compared with the target of 9% proposed in the notice on leakage control. The economic and social benefits of reducing the leakage rate of pipe network are reflected in three aspects: first, reducing the cost of water department and increasing economic income; Second, balance the water pressure and improve the safety and reliability of water supply; Third, effectively alleviate the shortage of water resources and the shortage of water supply, and realize resource-friendly and sustainable development.
The leakage rate control standard is set in the new market-oriented water price. In 2021, the measures for the administration of urban water supply prices and the measures for the supervision and examination of urban water supply pricing costs (hereinafter referred to as the new measures) were issued at the same time, opening a new round of market-oriented reform of water prices. The new measures propose to establish and improve the pricing mechanism with “permitted cost plus reasonable income” as the core. On the one hand, the water department is given a permitted rate of return to promote its capital expenditure for water informatization and intelligent transformation; On the other hand, it is clearly stipulated that the part of the water supply enterprise exceeding the 10% leakage rate shall not be included in the water supply pricing cost. The actual situation is that the leakage rate of most water companies is more than 10%. The cost of the excess part needs to be borne by the enterprise itself and cannot be reflected in the water price, which gives sufficient impetus for the water companies to reduce the leakage rate. Heda leakage reduction solution has the advantages of technology, products, customers and modes. Since its establishment, the company has adhered to focusing on pipe network leakage control and has mastered a number of core technologies of water supply pipe network leakage control. In terms of products, Heda put forward the concept of zoning leakage early warning and launched a noise early warning system based on zoning measurement to comprehensively monitor the pipe network flow, pipe network pressure and pipe network leakage noise, so as to realize the new leakage detection model of pipe network leakage control, focusing on technical prevention and supplemented by civil air defense. The company has accumulated a wealth of project cases and benchmark customers in reducing leakage. According to the prospectus, the company has undertaken the construction of water information system for Shaoxing water for 15 consecutive years, so that the leakage rate can be controlled below 5% for more than 10 consecutive years. In addition, the company innovated the service mode and cooperated with Shaoxing water affairs to establish the country’s first practical training base for leakage control of water supply network, providing leakage control training for China’s water industry. Since its establishment, the company has held 84 sessions and trained more than 3000 people.
The construction of digital economy provides medium and long-term driving force for the company
Urban pipeline reconstruction and construction is an important infrastructure project in the 14th five year plan. According to the people’s daily, at the central economic work conference held on December 8, 2021, Xi Jinping General Secretary specifically mentioned the instructions for “urban blood vessels”: during the 14th Five Year Plan period, pipeline reconstruction and construction must be taken as an important infrastructure construction process. The meeting clearly proposed to “carry out infrastructure investment moderately in advance”, including livelihood projects such as accelerating the aging, renewal and transformation of urban pipelines. We believe that Heda deep ploughing water supply, drainage, water conservancy, agricultural drinking water and other water affairs are important participants in urban pipeline reconstruction and construction infrastructure projects. Under the current macro background of steady growth, Heda may benefit from urban infrastructure investment.
Smart water is related to people’s livelihood. In the era of digital economy, it has dual values of digital governance and industrial digitization.
Since the second half of 2021, the state has successively issued a number of top-level design plans for each subdivision direction of the water industry, put forward a number of specific objectives for the development of the industry during the 14th Five Year Plan period, and stressed the need to strengthen scientific and technological support and strengthen the deep integration of new generation information technologies such as big data, cloud technology and artificial intelligence with the water industry, It provides a strong policy endorsement for the development of smart water. The water industry is essentially an urban public service related to the improvement of people’s livelihood. Its informatization and intelligent upgrading is not only an important part of digital governance in the digital economy, but also the only way for traditional water enterprises to change their development mode and realize industrial digitization in the era of digital economy. According to the disclosure on the company’s official website, the online business hall developed by Heda for Shaoxing water affairs has realized the “zero running” of more than 10 residential water supply businesses, such as online inspection and payment of water fee and water amount information, new decoration and transfer of ownership, so as to effectively promote the development of digital government affairs; The company provides water informatization and intelligent services to customers in more than 300 cities and more than 500 industries, and is committed to improving the digital level of water industry, which are the value embodiment of the company in the era of digital economy.
Investment advice
The company is a leading enterprise in the field of water informatization. Benefiting from the needs of water group to reduce leakage and the medium and long-term construction needs of smart water, the company has high growth. It is estimated that the revenue growth rate of the company from 2021 to 2023 will be 51.3% / 48.2% / 47.2% respectively, and the growth rate of net profit attributable to the parent company will be 45.8% / 43.5% / 43.0% respectively. It will be covered for the first time and given an investment rating of buy-a. Give a six-month target price of 58.80 yuan, equivalent to 40 times the dynamic P / E ratio in 2022.
