3Q21 performance is in line with our expectations
The company announced 3Q21 results: 3Q21's revenue was 3.678 billion yuan, an increase of 47.9% over the previous year, and Guimu's net profit was 569 million yuan, an increase of 37.7% over the previous year; revenue of 1~3Q21 was 10.551 billion yuan, an increase of 87.5% over the previous year, and Guimu's net profit was 1,874 million yuan, an increase of 138.2% over the previous year, in line with expectations. We believe that the increase in revenue is mainly due to the increase in production capacity and sales volume of the hazardous waste disposal and renewable resource recycling business in the current period.
Profitability declined slightly, and period expenses were fully optimized. From 1st to 3Q21, the company's gross margin fell 2.93ppt to 23.76% year on year, and there was a slight decline in profitability. We think it was mainly affected by the increase in the share of copper with relatively low gross margin in resource-based products. Benefiting from the increase in revenue scale and good corporate expense management, the expense ratio decreased by 2.93ppt to 4.00% year-on-year during the 1~3Q21 period. Among them, the sales/management/finance expense ratio decreased by 0.26/1.98/0.69ppt to 0.19%/2.31%/1.51%.
Operating cash flow declined slightly. Net cash flow from operating activities decreased by 22.57% year-on-year to 3Q21 to 36.106 million yuan. We believe this was mainly due to an increase in pre-paid procurement payments for production materials in the current period.
Development trends
The main resource recycling business is developing steadily, and the utilization of lithium battery dismantling waste is being deployed. The company has put into operation a front-end production capacity of 1.78 million tons and an on-hand production capacity of 970,000 tons. There is still room for a 50% increase. At the same time, the company is also actively exploring new projects to expand the national layout. We are optimistic about the technology accumulation and channel advantages of the company's hazardous waste recycling business, which is expected to gradually increase its market share in the context of stricter environmental regulations. At the same time, the company is promoting technological reform of end production capacity. The nickel sulfate production line has already been put into operation, and cobalt sulfate and lithium carbonate production capacity are expected to be gradually put into operation. We are optimistic that the company's lithium battery dismantling waste utilization business will open up room for long-term growth.
Actively deploying pumped energy storage is expected to usher in development opportunities. The company started with medium to large hydroturbine generator equipment. It has rich experience in designing and manufacturing complete hydroturbine units, and its profitability is increasing year by year.
In September 2021, the National Energy Administration issued the “Medium- and Long-Term Pumped Energy Storage Development Plan (2021-2035)”, which proposed vigorously promoting the development of pumped energy storage. We believe that the company has benefited from increased demand for pumped energy storage, and the company's clean energy equipment business is expected to usher in development opportunities.
Profit forecasting and valuation
The net profit forecast for 2021 and 2022 remains unchanged at $2,377/2,475 million. The current stock price corresponds to a price-earnings ratio of 16.0 times/15.4 times 2021/2022. Maintaining an outperforming industry rating and a target price of 9.25 yuan corresponds to 20.9 times the 2021 price-earnings ratio and 20.1 times the 2022 price-earnings ratio. There is room for an increase of 30.5% compared to the current stock price.
risks
Metal prices fluctuated, project implementation and capacity climbs fell short of expectations, and the macroeconomic downturn affected demand.