Focus of opinion
Investment suggestion
The company announced 2021 results: revenue of 4.015 billion yuan, year-on-year + 21.12%; net profit of 161 million yuan, corresponding to earnings per share of 0.18 yuan, year-on-year-46.98%, lower than expected. The main reason is that the competition in the industry continues to intensify, the cost of recycling and hazardous waste increases, and the price of harmless disposal decreases. We downgraded the company to "neutral".
The reasons are as follows:
The business of the company is under pressure: in 2021, the operating income of the company's renewable energy and CDM trading / environmental engineering and services / municipal waste treatment and disposal / electronic waste disassembly business decreased by 44.89% and 41.14%, respectively, compared with the previous year. The company's gross profit margin fell 6.64ppt to 27.48% in 2021 from the previous year. The main reason is that the competition in the industry continues to intensify, the cost of recycling and hazardous waste collection and transportation continues to increase, and the price of harmless collection, transportation and disposal has dropped significantly.
Operating cash flow declined: in 2021, the net cash flow of the company's operating activities decreased by 59.87% to 391 million yuan compared with the same period last year, mainly due to the increase in working capital after the merger and acquisition of Xiongfeng environmental protection in the reporting period, as well as the reduced impact of dismantling subsidies received in the same period last year.
Long-term attention to the company's business development and capacity release: the company's acquisition of 70% stake in Xiongfeng Environmental Protection Technology Co., Ltd. will help the company to quickly enter the field of metal resources and play a synergistic effect. In addition, the company has relatively sufficient production capacity, and key projects in three provinces are currently under construction, with a total design capacity of 3555 million tons per year. We believe that the development of precious metal resources business and the release of reserve capacity are expected to support the company's long-term performance growth.
What is the biggest difference between us and the market? We are more cautious about the growth of the company's business in the future.
Potential catalysts: costs continue to rise, sales prices continue to decline, performance continues to decline.
Profit forecast and valuation
Taking into account the intensified competition in the industry, the net profit in 2022 will be reduced by 21% to 231 million yuan, and the net profit in 2023 will be 288 million yuan. The current A share price corresponds to 21 times of 2022 pound 2023 26 pound E, and the current H share price corresponds to 9 times of 2022 11 pound E in 2023. The company's performance is under pressure, and considering that the resource-based business continues to develop, the A-share price is reduced by 10.1% to 8.0 yuan, corresponding to 2022, 2023, 34, 27, and 27 times Pmax E, which has 16% upward space compared with the current stock price. The H-share price has been lowered by 14.3% to HK $4.2, corresponding to 2022, 2023, 16-pound, 13-fold PCME, which is 27% upside from the current share price.
Risk.
Uplink risk: the company's order release and metal resource market development exceeded expectations. Downside risk: metal resource utilization new business operation risk, project promotion risk.