The profit quality of biomass sector is improved, and the transformation is on the way.
The profit quality of the biomass sector will be improved: due to the impact of subsidies related to biomass power generation, the company's construction revenue from the biomass sector is expected to decline significantly in 2021, and the biomass sector will shift from construction plus operation to focus on operation. As more of the company's biomass projects use cogeneration, we expect that the heating target of 2 million tons of steam in 2021 is expected to exceed the target. In the future, the profits of this sector will mainly come from operations with higher profit margins, and the profit quality is expected to improve.
Repair of hazardous waste plate can be expected: in terms of hazardous waste operation, due to the occasional epidemic, the negative impact on waste-producing enterprises is still continuing, the handling capacity and prices are still under pressure, and the expansion rate of hazardous waste construction has also slowed down. But in the long run, considering that 1) the company still has a large number of projects on hand, and the overall business growth will be driven after the new projects are put into operation; 2) the company will gradually focus on comprehensive disposal projects to provide one-stop hazardous waste disposal services for enterprise customers. can continue to increase customer stickiness And 3) recently, eight ministries and commissions pointed out that the comprehensive utilization rate of bulk industrial solid waste will reach 57% in 2025, compared with 55.0% in 2019 and 55.4% in 2020. We believe that the company's hazardous waste sector business will continue to develop steadily.
Actively promote environmental restoration and new energy business: the company will vigorously develop environmental restoration business, in the future will focus on breaking through the landfill restoration business, and explore and innovate the business model of "EOD+IOD+ Future Community Urban Development". At the same time, to promote the integrated energy service business of photovoltaic, wind energy, energy storage and existing biomass projects, the whole county photovoltaic is one of the development directions, which will bring new revenue and profit growth points for the company.
Diversified financing channels to ensure the sustainable development of the company: the company completed two diversified financing projects in 2021, respectively: 1) successfully issued the country's first carbon neutralization and rural revitalization green panda medium-term bill with a principal of 1 billion yuan. The coupon is 3.5%, and the proceeds will be used to repay the project loans for agricultural and forestry biomass projects. 2) A three-year ABN of 589 million RMB was successfully issued with an interest rate of 4.05% to invigorate accounts receivable and effectively enrich the operating cash flow at the same time.
Both financing are conducive to improving the company's balance sheet structure.
Adjust the target price to HK $4.00 and maintain the buy rating: according to the company's future development plans, we adjust the company's homing net profit for the next three years to HK $1.06 billion, HK $1.18 billion and HK $1.24 billion respectively. Based on the 7x PE valuation in 2022, we have adjusted our target price for the next 12 months to HK $4.00 to maintain our buy rating.
Risk factors: lower-than-expected construction, influence of subsidy policy, fluctuation of raw material prices