Steam sales and potential national certified voluntary emission reduction (CCER) applications will boost growth in the biomass sector
Subsidy rebate in FY21 increased by about 67% compared with the same period last year.
Lower the discounted cash flow target price to HK $2.70 to maintain neutral rating biomass: expand steam sales business
As most biomass power generation projects begin operation at the end of 2021, the company is also expanding its steam sales business to drive revenue growth (steam sales capacity: more than 2 million tons by the end of 2021, and the company plans to double that capacity within three years. We expect steam sales to account for 7 per cent of its total revenue by fiscal year 24). Steam is generated in the process of burning straw through the installation of additional equipment, and the main demand comes from industrial customers around it.
CCER: provide a potential source of income
According to management, the company's overall project (mostly biomass projects) can reduce carbon emissions by 3 million tons per year. With the CCER (national certified voluntary emission reduction program) expected to restart in the near future, this will give the company additional revenue (assuming that at the current average carbon reduction price of 50 yuan per tonne, this will generate additional revenue of about 150 million yuan for the company, which is expected to account for 2% of its total revenue in fiscal year 21).
Electricity price subsidy: faster payback
In terms of electricity price subsidy, the management said that the overall progress of the company's biomass project rebate has been accelerated (all subsidies can be completed for the new projects put into operation in 2020). As a result, the company has received about 500 million yuan in subsidies in fiscal year 21 (compared to about 300 million yuan in fiscal year 20).
Rising biomass business costs, downward earnings forecast and discounted cash flow target price due to the expected increase in raw material collection costs for biomass projects, which will push up the company's sales cost. as a result, we reduced the company's forecast core profit for fiscal year 21-23 by 10% and the discounted cash flow target price from HK $2.9 to HK $2.7, corresponding to 4.7 times / 4.2 times the forecast price / earnings ratio for FY22. Investors are advised to wait for signs of a significant improvement in the company's cash flow.