China Tianying Inc(000035) (000035)
Key investment points
An international integrated environmental management service provider, divestiture, light pack and set sail. The company has been deeply engaged in the field of environmental protection for 15 years and has completed the global layout of the whole solid waste industry chain with the help of urbaser, the world’s leading comprehensive environmental supplier. In 2021, the company sold 100% equity of urbaser for 1.47 billion euros. After stripping, the company’s main business returned to waste end disposal, urban environmental services and environmental protection equipment manufacturing.
The sale of urbaser reduced the debt ratio, with sufficient funds in hand and a rebound in profitability. Urbaser bid ask spread reached 320 million euros, Pb decreased and the safety margin increased. The company’s financial situation is facing three major changes: compared with 2021q1, 1) the decline of goodwill and debt ratio: the goodwill is reduced from 5.4 billion yuan to 40 million yuan, the impairment risk is eliminated, and the asset liability ratio is reduced by 25.40pct to 50.62%, leaving financing space. 2) Abundant cash on hand: the exchange obtains cash to repay debts and reduce financial pressure, leaving about 6 billion yuan for business development. 3) Profit index rebounded: gross profit margin increased by 7.85pct.
The company’s waste incineration capacity has doubled, with significant international advantages and embracing the overseas blue ocean market. The industry’s rigid capacity expansion increased by 9% in the 14th five year plan; The waste disposal fee is transferred to the tax department for collection, the business model is rationalized to the C-end, and the cash flow is improved; The carbon reduction effect of waste incineration is significant. In the case of 30 yuan carbon price of CCER, it contributes 12% profit elasticity. Enterprises are expected to reduce their dependence on subsidies through carbon trading. 1) there is room for the company to double its operational capacity: by the end of 2020, the operational capacity will be 11000 tons / day, the capacity under construction will be 15000 tons / day, and the planned capacity will be 3000 tons / day. In the past two years, there has been a period of intensive investment and production, and domestic projects will be less affected by the new deal. 2) Obvious advantages of horizontal integration: in 2020, the company signed domestic waste incineration and kitchen treatment projects with Xilinhot City, reflecting the synergy of horizontal expansion. 3) Leading technology & urbaser brand helps overseas independent development: Master Belgian waste to energy technology, actively explore the blue ocean market in Southeast Asia, and independently win the projects in Vietnam, Singapore and other places. By the end of 2020, the company’s overseas on hand production capacity was 6300 tons / day, ranking first among Listed Companies in China. Among the projects under construction, the overseas production capacity accounted for 42%, and the disposal fees for overseas projects were favorable.
The layout of the whole industrial chain of urban environment and the internalization of Technology & management experience have reached 10 billion contracts. Marketization will drive the environmental service industry to grow at a compound growth rate of 15% from 2019 to 2025. Property management will strengthen capital equipment management barriers and promote industry concentration. With the help of urbaser, the company has completed the layout of the whole industrial chain of urban environment and internalized its technology & management experience. From 2016 to 2020, the total amount of domestic contracts reached a breakthrough of RMB 0 to 10 billion. With the national promotion of waste classification policy, the company’s orders will accelerate the accumulation.
There is a wide space for plasma disposal of medical waste, and the layout of new energy industry responds to the dual carbon goal. The company’s plasma technology is leading in the country and has the conditions for industrialization. Plasma disposal of medical waste has the advantages of low pollution and high efficiency. The environmental protection standard is becoming stricter. From 2022, the emission limit of medical waste disposal will be tightened by about 50%. The substitution and promotion of plasma disposal of medical waste can be expected. The company signed a new energy industry investment agreement with Rudong County to plan the development of new energy projects such as photovoltaic and wind power, research and development of energy storage projects, construction of regional energy center and Internet platform, and construction of zero carbon infrastructure platform. The company actively responds to the double carbon goal and seizes the commanding height of global zero carbon industry competition in the future.
Profit forecast and investment rating: the company’s assets will be stripped off and it will be light again. Based on the retained three main businesses and considering the urbaser consolidated statement, we expect the company’s net profit attributable to the parent company in 2021-2023 to be 702 / 798 / 1005 million yuan respectively, an increase of 7.48% / 13.66% / 25.87% and EPS to be 0.28/0.32/0.40 yuan respectively, corresponding to 21 / 18 / 15 times PE; Excluding the urbaser consolidated statement, under the comparable caliber, the parent company will increase by 62.53% in 2022, which will be covered for the first time, and will be rated as “overweight”.
Risk warning: the project construction progress is lower than expected, policy risk and exchange rate fluctuation risk
