Event: the company disclosed its 2021 annual report that the company realized operating income of 5.057 billion yuan in 2021, an increase of 122.03% over the same period last year, and a net profit of 698 million yuan, an increase of 38.62% over the same period last year.

Comments:

The income from solid waste disposal has maintained a relatively rapid growth. In 2021, the company achieved revenue of 5.057 billion yuan, an increase of 122.03% over the same period last year. In terms of business segments, the revenue from solid waste disposal was 2.619 billion yuan, an increase of 21.54% over the same period last year, mainly due to the increase in operating projects and the improvement of capacity utilization of some operating projects, which maintained rapid growth; the revenue from the construction of BOT projects was 2.427 billion yuan, and the company implemented the Enterprise Accounting Standards interpretation No. 14, which confirmed the construction income of BOT projects for the first time, resulting in a substantial increase in revenue. In 2021, the company realized a net profit of 698 million yuan, an increase of 38.62% over the same period last year. In a single quarter, 2021Q4 achieved revenue of 3.111 billion yuan, an increase of 395.02% over the same period last year, and a net profit of 84 million yuan, an increase of 11.36% over the same period last year.

The BOT project construction business lowers the company's overall gross profit margin. The company's gross profit margin in 2021 was 34.24%, a year-on-year decrease of 23.27 percentage points. In terms of business segmentation, the gross profit margin of solid waste disposal business is 59.29%, a decrease of 0.86% over the same period last year, with an average of 59.19% in the past three years, and the profitability is relatively stable; the gross profit margin of BOT project construction business is 7.79%, which lowers the overall gross profit margin of the company. The company's net interest rate in 2021 was 14.67%, down 8.53 percentage points from the same period last year. In a single quarter, 2021Q4's gross profit margin was 17.58%, down 38.13% from a year earlier, and net profit was 3.03%, down 10.58% from a year earlier.

With the continuous progress of the project construction, the production capacity is expected to be released gradually. In 2021, the company's project construction has been continuously promoted, and six new projects and three second-phase projects have been completed and put into production, with an additional capacity of 7500 tons per day, with an additional capacity of more than 6000 tons per day for three consecutive years. As of December 31, 2021, the company has 31 operating projects in the field of domestic waste incineration and power generation, with a waste disposal capacity of 34000 tons per day, 5 projects under construction and 7 projects under construction, and the production capacity is expected to be released gradually.

The company actively carries out new businesses such as kitchen waste disposal and heating, and is expected to expand its sources of income. In 2021, the company won Shantou Chaoyang Kitchen waste disposal Project and Tianjin Ninghe Kitchen waste disposal Project.

By the end of 2021, the company has obtained 8 kitchen waste disposal projects to achieve business coordination with domestic waste incineration power generation projects. In addition, the company's Pingyang project, Rushan project and Jiamusi project have successfully expanded their heating business. By the end of 2021, the company has carried out five waste incineration power generation projects in heating business, which is expected to expand its source of income.

Investment advice: maintain cautious recommended ratings. It is estimated that from 2022 to 2023, the EPS of the company will be 0.71 yuan and 0.76 yuan respectively, and the corresponding PE will be 12 times and 12 times respectively.

Risk hints: policy promotion is not as expected; macroeconomic development is not as expected; construction progress of waste incineration power generation projects is not as expected.