\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 129 Runa Smart Equipment Co.Ltd(301129) )
Leading enterprises in heating and energy conservation, one-stop “product scheme service” helps high-quality growth Runa Smart Equipment Co.Ltd(301129) as a leading one-stop overall solution provider of urban heating in China, it has completed the upgrading from the price competition of a single product to the value creation of a complete solution provider. The main revenue comes from three areas: heating energy-saving products, heating energy-saving scheme design and implementation and heating energy-saving services. The products cover the core heating links such as heat sources, heat networks, heat stations and heat users required by customers. As of 2020, Shandong, as the company’s main revenue region, accounts for about 68%. Regions outside Xinjiang and other provinces have expanded smoothly. Six of the country’s top 10 heating companies have been corporate customers, with prominent industry status and rich customer resources. From 2017 to 2020, the revenue and performance increased by 37% / 63% respectively; In 2020, the gross profit margin / net profit margin / roe are 56% / 31% / 39% respectively, with outstanding profitability; The matching degree of cash flow and net profit is high, the profit quality is high, and the business model is excellent.
The imbalance between supply and demand of heat sources promotes short-term prosperity, and the “double carbon” goal provides medium – and long-term strategic opportunities. China’s heating heat mainly comes from thermal power stations and boiler rooms, which are transmitted by hot water or steam. 1) In the short term, stricter environmental protection policies, high coal prices, energy consumption control and other policies exacerbate the substitution and shutdown of coal-fired boilers and backward thermal power units to restrict the supply of heat sources. On the demand side, China still maintains an increase of about 500 million square meters of central heating area every year. The steady growth on the demand side further exacerbates the imbalance between supply and demand in the heat market, and the power of refined management and control of heat companies is enhanced; 2) In the medium and long term, the heating and energy-saving industry welcomes the golden development period under the double carbon goal. Heating accounts for a large proportion of energy consumption and carbon emission in the building operation stage. The phenomenon of heating waste promotes the continuous improvement of heating energy-saving demand. According to the data of the energy consumption statistics special committee of China State Construction Engineering Corporation Limited(601668) Energy Conservation Association, the total energy consumption of China State Construction Engineering Corporation Limited(601668) operation in 2018 was about 1 billion tons of standard coal, accounting for 22% of the national total, of which the building operation energy consumption and carbon emission in the northern heating area accounted for about half, that is, about 11% of the national energy consumption and carbon emission. At the same time, according to the calculation of the building energy conservation center of Tsinghua University, the heating energy consumption of northern cities and towns in 2018 was 212 million tons of standard coal, accounting for 21% of the total energy consumption of building operation; The carbon emission is about 550 million tons, accounting for 26% of the total carbon emission of building operation. It is urgent to continue to promote the energy-saving and carbon reduction transformation of municipal infrastructure such as new buildings and old heating pipe networks.
There is a broad market space for heating and energy conservation, and the company has a long-term growth gene in the future. According to the data of the Ministry of housing and urban rural development, the investment in fixed assets of urban central heating in China in 2020 was 39.4 billion yuan, an increase of 18% at the same time. We expect that under the dual carbon development goal, the investment in energy conservation and consumption reduction of central heating is expected to increase in the future, so as to promote the medium and long-term growth of the investment scale of the industry. It is assumed that the investment scale will maintain a compound annual growth rate of 10% from 2021 to 2025. In terms of unit price, based on the national transformation policy of three supplies and one industry, the transformation standard of heating system in residential areas is about 120 yuan / m2 (9600 yuan / household), of which the unit price of heating energy-saving facilities is about 20 yuan / m2 (refer to the unit price of typical representative projects disclosed in the company’s prospectus). It can be estimated that the proportion of heating energy-saving facilities in China in the total investment of heating system is about 16.7%. At the same time, we assume that under the current dual carbon development goal, the demand for heating energy conservation continues to increase, and the proportion of heating energy-saving facilities in the total investment is expected to gradually increase from 16.7% in 2020 to 30% in 2025. Therefore, it is estimated that the market scale of China’s heating facilities will be about 6.6 billion yuan in 2020 and 20.3 billion yuan in 2025, with a five-year compound growth rate of 25%.
The strategic strength is underestimated, the integration of hardware and software builds competitive barriers, and energy-saving services are expected to open up long-term growth space. Through more than ten years of strategic layout, it has become one of the few intelligent heating overall solution providers integrating “products + Solutions + services” in China. The company’s competitive advantages are as follows: 1) compared with the three types of peers, the company has the advantage of integrated services compared with product supply enterprises; Compared with system integration enterprises, the overall solutions provided by the company mainly rely on self-produced products, and the solutions involved, implementation and follow-up services are more competitive; Compared with engineering construction enterprises, the company has rich and sound self-produced products, more advanced technical solutions, and focuses on the heating and energy-saving industry. The company has more prominent comprehensive advantages in terms of successful cases and energy-saving effects; 2) The hardware and software integration card is in the lead, and the “platform + module” data exchange solves the problem of data island and meets the needs of customers. Through the use of Internet of things, big data, cloud computing and other technologies, the company has built Reina smart heating management platform. The innovative technology of distributed modularization is adopted in the design of the platform, and each module can not only cooperate with each other, but also operate independently. All module systems of the platform realize data exchange, and have strong expansibility in the layer of openness and supporting customer personality customization, so as to solve the problem of data island; 3) The company’s smart heating technology reduces building heat consumption and carbon emission by 20% – 30% and power consumption by 30% – 60%. The pilot of contract energy management is progressing smoothly in Zaozhuang, Shandong and other places. The high energy consumption in the heating industry is mainly caused by unclear user demand, inadequate control measures, insufficient response capacity and other factors. Relying on the data resources accumulated from a large number of project practical experience, the company has developed a smart heating system that can help heat customers systematically save energy and reduce consumption on the premise of improving user support ability in combination with the law of users’ heating demand and community energy consumption analysis. Maintain the “buy” rating. We expect the company to realize a net profit attributable to the parent company of 170 / 24 / 320 million yuan from 2021 to 2023, with a year-on-year increase of 33% / 37% / 36%, and EPS of 2.35/3.21/4.38 yuan respectively (the CAGR is 35% from 2020 to 2023, and the current share price corresponding to PE is 23.8/17.4/12.8 times respectively. Considering that the company, as a leading enterprise in China’s one-stop heating and energy saving, focuses on benefiting from the continuous deepening of the dual carbon development goal and maintaining the “buy” rating.
Risk tips: policy promotion is less than expected risk, technology development risk, new business and new market development are less than expected risk, etc.
