Core ideas:
The release of ABN helps to reduce costs, and the accelerated commissioning of the project is expected to lead to a continuous improvement in cash flow. The company issued a 589 million RMB ABN in the first half of 2021 and returned 193 million yuan in cash through circular purchases in October 2021. Through the issuance of ABN, on the one hand, the company will reduce the borrowing cost from 4.08% / 4.90% of 2020H1 to 3.89% / 4.70% of 2021H1; on the other hand, the issuance of ABN is expected to drive the company's cash flow back. combined with the gradual operation of the company's projects in recent years, the company's cash will continue to improve.
Biomass projects continue to transfer to operation, and the proportion of operating income of the company continues to increase. The acquisition of biomass projects has slowed down in the past two years, and the company's biomass business income in the first half of 2021 was HK $3.32 billion (- 8.8% compared with the same period last year) With the continuous transfer of hand-made materials projects, the proportion of the company's operating income has increased to 70% (compared with 56% in the same period last year), and the revenue structure has improved. At the same time, the construction of hazardous waste projects continued to advance, and the construction income of hazardous waste business increased to 410 million Hong Kong dollars (+ 210.4% compared with the same period last year) in the first half of 2021, contributing to the growth of hazardous waste 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 2021 (+ 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 2021 to achieve the epitaxial development of mass 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 advice: the proportion of operating income increases and cash flow continues to improve. It is estimated that the EPS of the company in 2021-23 will be 0.49,0.53,0.62 Hong Kong dollars per share, respectively, and the corresponding PE will be 5.60,5.18,4.42 times according to the latest closing price. With reference to comparable company valuations, it will be given 6 times PE in 2022, corresponding to a reasonable value of HK $3.16 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.