Dongjiang Environmental (002672) Performance Express Commentary: Goodwill impairment accrued, depreciation expenses increased and performance decreased by approximately 14%

Investment highlights: Event: On February 28, Dongjiang Environmental announced its 2018 annual results report, achieving operating income of 32.

9.7 billion, an annual increase of 6.

36%, operating profit 5.

5.4 billion, a decline of 8 per year.

51%, total profit 5.

5.7 billion, a decline of 10 per year.

52%, net profit attributable to mother 4.

09 billion, down 13 each year.

69%, budget benefit 0.

47 yuan.

Opinion: Provision for impairment of goodwill is provided, and depreciation of fixed assets and expenses are allowed to increase.

The initial decline of the company’s performance has the following points: 1. The company expanded its market investment and increased sales and management expenses.

2. As of September 30, 2018, the company’s net goodwill formed by the acquisition of subsidiaries.

3.6 billion.

For some acquisitions, the profitability of the acquired projects did not meet expectations and the analysis of the future operating conditions. Based on the principle of prudence, the company made provision for impairment of goodwill at the end of the year.

In addition, in the case of downward pressure on the overall economic prospects, the company intends to make provision for impairment of some assets other than goodwill based on the principle of prudence in accordance with relevant regulations such as accounting standards.

3. In order to respond to the market demand for hazardous waste disposal, the company accelerated the project construction progress, and the completed project was expanded and reached the expected usable 南宁桑拿 state in the fourth quarter of 2018. According to corporate accounting standards and related regulatory requirements, the project under construction is converted into fixed assets.The amount of depreciation and the corresponding financial expenses increased more than expected; however, some completed projects are at the ramp-up stage of production capacity, and the profit contribution has been slow.

The company is a leader in hazardous waste disposal and has a long-term competitive advantage.

Since 2018, the company has promoted the construction of multiple projects. Under the background of increasing downward pressure on economic growth, the company’s business implementation has also been affected by changes to a certain extent. The project’s climbing period has been extended and performance has been released slowly.

However, at present, the hazardous waste disposal industry as a whole is still undercapacity, and harmless permits are scarce.

The company has the most complete qualifications for hazardous waste disposal and has a long-term competitive advantage.

The introduction of Guangsheng and Huihong’s two state-owned assets backgrounds and improved financing capabilities are conducive to the promotion of subsequent projects.

The impact of the short-term performance breakthrough brought by the downward pressure of economic growth, but the severe situation of the state’s supervision and management of hazardous waste will continue. The industrial hazardous waste originally disposed by non-distance channels will gradually be transformed into distance channels in the future, which will help the company’s business expansion.
The “Work Plan for Pilot Construction of” Non-Waste Cities “issued by the Air Force of the State Council promotes the reduction of solid waste sources, the utilization of resources, and the harmless disposal, and chooses about 10 cities to implement the pilot.The plan and future policy specifications will also help promote the release of hazardous waste disposal needs.

Investment advice: Maintain a cautious recommendation level.

It is expected that the EPS for 2018-2020 will be 0.

47 yuan, 0.

58 yuan, 0.

73 yuan, corresponding to PE is 26 times, 21 times, 17 times, maintaining a cautious recommendation level.

risk warning.

Preliminary project progress is expected, capacity expansion exceeds expectations, and environmental protection expectations exceed expectations.