3Q21 performance is lower than we expected.
The company announced 3Q21 results: 3Q21's revenue was 986 million yuan, an increase of 19.75% over the same period last year, and its net profit was 51 million yuan, down 26.26% from the same period last year. The income of 1-3Q21 was 2.642 billion yuan, an increase of 14.76% over the same period last year, and its net profit was 162 million yuan, a decrease of 29.21% over the same period last year, which was lower than our expectation. We believe that the decline in performance is mainly due to intensified market competition, resulting in a decline in the collection and transportation price of hazardous waste harmless disposal business.
Profitability declined, and expenses fell slightly during the period. 1-3Q21's gross profit margin decreased by 3.48ppt to 28.4% compared with the same period last year, mainly due to the decline in hazardous waste disposal prices caused by intensified competition in the industry. During the 1-3Q21 period, the expense rate decreased by 0.91ppt to 17.6% compared with the same period last year, of which the management / financial expense rate decreased by 0.33ppt/0.51ppt to 11.0% and 3.3%, with slightly optimized expenses during the period. Operating cash flow is under pressure. The net cash flow of 1-3Q21 operating activities decreased by 59.08% to 256 million yuan compared with the same period last year, mainly due to the increase in the cost of selling resource-based products and purchasing raw materials in the reporting period, as well as the increase in Xiongfeng Environmental Protection prepaid raw materials.
Trend of development
Xiongfeng environmental protection equity delivery completed, solid waste collaborative development prospects. According to the company announcement, in order to optimize the core chain of industrial solid waste and hazardous waste business, the company acquired 70% of Xiongfeng Environmental Protection Technology Co., Ltd., and the equity delivery has been completed by September. The company's business scope includes solid waste resources, water treatment, environmental engineering and so on. After many years, it has formed an industrial layout covering many core economic regions of the country. Xiongfeng Environmental Protection's main business is industrial solid waste and hazardous waste disposal and rare and precious metal recycling. We believe that this acquisition will help the company to quickly enter the field of metal resources, deeply integrate internal resources, and then give full play to the collaborative potential of the solid waste industry chain. we are optimistic about the long-term contribution of the improving layout of the solid waste plate to the company's performance.
Sufficient production capacity for hazardous waste disposal to ensure the steady growth of the main business. In October, the company's Mianyang Dongjiang hazardous waste project was officially put into production, and there are many projects under construction, such as Fujian Oasis physicochemical project, Fulong environmental protection incineration project and so on. The company has rich reserve capacity and remarkable scale advantage in the field of hazardous waste disposal. We believe that the gradual release of reserve capacity will contribute to the long-term and steady growth of the company's core business.
Profit forecast and valuation
Considering the pressure on the company's profitability caused by increased competition in the industry, we cut the net profit of 202112022 by 15% of net profit by 16% to 291 million yuan. The current A share price corresponds to 23x / 21x Pmax E in 2021Universe 2022, and the current H share price corresponds to 10x / 9x Pmax E. however, Xiongfeng's environmental protection and resource utilization business is expected to drive the company's long-term growth. The A share price keeps outperforming the industry rating and the target price of 8.90 yuan, and corresponds to 2021Universe 2022 3027x Pmax E, which has 30.7% upside compared to the current stock price. H-shares maintain an outperform industry rating and a target price of HK $4.90, corresponding to 2021 Universe, which is 14 times more than 2022, and has 38.0% upside compared to the current share price.
Risk
Metal resource utilization of new business operation risk, project promotion risk.