Core ideas:
Revenue in the first half of the year was + 1.7% compared with the same period last year, and construction business slowed. The company disclosed its mid-2021 report that its revenue in the first half of the year was HK $4.32 billion (+ 1.7% compared with the same period last year) and its net profit was HK $700 million (- 14.6% compared with the same period last year). Under the influence of the national subsidy recession, the company's biomass project orders slowed down, resulting in a decline in construction revenue, and the company's revenue growth slowed down. The decline in the company's performance is mainly due to the rise in the price of biomass raw materials under the influence of the epidemic, the difficult operating environment in the hazardous waste market and the increase in financial costs. In addition, the company issued ABN with a scale of 569 million yuan in the first half of the year, and the company's borrowing costs dropped from 4.08% / 4.90% in the same period last year to 3.89% / 4.70% in the first half of the year, and the financing environment improved.
Biomass projects continue to switch to operation, and the proportion of the company's operating income has risen to 70%. In the first half of the year, the company's biomass business income was HK $3.32 billion (year-on-year-8.8%), and hazardous waste business income was HK $760 million (year-on-year + 70.1%). The company's acquisition of biomass projects has slowed in the past two years, and the continuous transfer of existing projects has led to an increase in the proportion of the company's operating income to 70% (compared with 56% in the same period last year), and the income structure has improved. At the same time, the construction of hazardous waste projects continued to advance, the number of projects under construction increased, and the construction income of hazardous waste business increased to 410 million Hong Kong dollars (+ 210.4% compared with the same period last year), contributing to the growth of hazardous waste business income.
The transformation of biomass provides a bright spot for growth, and the hazardous waste business achieves multi-dimensional expansion. The company's biomass project has been transformed to a high value-added direction, with cogeneration providing additional income, and steam supply has reached 1.06 million tons in the first half of the year (+ 80.1% compared with the same period last year). In terms of hazardous waste business, the company obtained the waste tire disposal project in the first half of the year, realizing the extension development to the bulk solid waste. And the company continues to tap the development potential of general industrial solid heat and power cogeneration business, which is expected to further enhance the profitability of hazardous waste business.
Profit forecast and investment rating: the operation efficiency is improved, and the operation share continues to improve. It is estimated that the EPS of the company in 2021-23 will be 0.63,0.73,0.85 Hong Kong dollars per share, respectively, and the corresponding PE will be 4.05,3.49,3.02 times according to the latest closing price. With reference to comparable company valuations, it will be given 6 times PE in 2021, corresponding to a reasonable value of HK $3.79 per share, maintaining a "buy" rating.
Risk hints: financing improvement policies were introduced and implemented less than expected; biomass operation subsidies could not be put in place on time, insufficient capacity utilization; changes in preferential policies such as feed-in electricity prices and taxes.