Investment Summary:
Recently, the company released its annual report for 2021. During the reporting period, the company achieved revenue of 22.2 billion yuan, an increase of 15.65% over the same period last year, and a net profit of 2.29 billion yuan, an increase of 55.6% over the same period last year, of which 1.63 billion yuan was deducted from non-net profit, an increase of 19.5% over the same period last year. The company's Q4 revenue in 2021 was 7 billion yuan, down 8.4 percent from the same period last year, up 6.2 percent from the previous year; the net profit from its parent was 370 million yuan, down 31 percent from the same period last year and 23 percent from the previous year; of this total, the non-net profit was 410 million yuan, down 20.8 percent from the same period last year and 12.3 percent from the previous year.
The whole is in line with our expectations.
The effect of ecological + strategic deep ploughing stock cities is beginning to show.
During the reporting period, the company added 74 new projects, with a contract size of 18.9 billion yuan. Of the new projects, 74% come from stock cities, and the company's strategic effect of extending the value chain in diversified forms of farming cities is beginning to show, and it is expected to continue to support business development in the future.
The development of light asset model is accelerated.
The pace of the company's light asset market development has been gradually accelerated. During the reporting period, of the 74 new projects added by the company, 51 were light asset projects, with a total contract size of 12 billion yuan, a sharp increase of 122% over the same period last year.
The performance of urban water affairs has maintained growth, and the stock of urban deep ploughing strategy has replenished capacity reserves.
In 2021, the company realized revenue of 505 million yuan and 263 million yuan for sewage treatment and water supply treatment respectively, an increase of 30.5% and 21% respectively over the same period last year. During the period, the new water treatment capacity was about 1.46 million tons per day, which was slower than that in 2020. The water price adjustment of one water treatment project and 15 sewage treatment projects was completed, and the average water price of water supply and the average sewage treatment fee were increased in varying degrees.
Although the planned capacity of the water project under construction is only 677,000 tons per day, it is the lowest in recent years. However, through the deep ploughing of the stock city, the company obtained 31 light asset projects and 21 heavy asset projects in the reporting period, with a total contract size of 10.3 billion yuan, thus quickly replenishing the project reserves and ensuring the sustainable growth of the water sector in the future.
Subdivided areas such as incineration and sanitation accumulate sufficient potential energy for the growth of solid waste business.
During the reporting period, the company realized solid waste disposal business revenue of 7.67 billion yuan, an increase of 44.68% over the same period last year. The decrease in gross profit margin (5.89pct) is mainly due to the implementation of Accounting Standard 14 to recognize the revenue and cost of construction services for the PPP project.
The waste incineration production capacity increased by 4000 tons per day this year, and the company plans to put into production of 6600 tons per day in 2022; at the same time, the company signed and acquired incineration capacity of 4400 tons per day in 2021, according to the disclosed project estimates, this year's capacity reserve remains above 10,000 tons, which will continue to provide a guarantee for future incineration performance growth. In addition to incineration, the company's newly signed sanitation projects generated an additional annual service fee of 127 million yuan, and the newly signed external contracts for site repair business reached 110 million yuan.
Strengthen asset management, optimize asset structure, and significantly improve profitability.
During the reporting period, the company cumulatively completed the withdrawal of Shenzhen water affairs, GM initiative and other projects, and confirmed that the investment income was about 720 million yuan, which was also the reason for the high growth rate of the company's return net profit this year.
In 2022, the company plans to sell 100% equity in New Zealand solid waste business company for 7.5 billion yuan, in order to continuously optimize asset quality and reduce asset-liability ratio (the underlying company's asset-liability ratio is more than 82%). The investment income generated by the transaction is about 3.021 billion yuan; the impact on 2022 homing net profit is about 2.175 billion yuan.
This year, the company's ROE increased significantly, from 5.67% to 8.35%; deduction of non-ROE increased from 5.27% to 5.96%: both indicators are the highest since 2015 and have been rising since 2017.
Investment suggestion: the company's new strategic transformation is beginning to bear fruit, and the "ecological plus" strategy of multi-industry forms in deep ploughing cities is expected to continue to provide support for the company's performance development, and the improvement of asset management and operation will provide guarantee for the company's long-term and healthy development. It is estimated that the company's net profit from 2022 to 2024 is 2.26 billion yuan, 2.8 billion yuan and 3.09 billion yuan respectively, corresponding to 0.31 yuan, 0.34 yuan and 0.43 yuan for EPS, maintaining the company's target price of 4.48 yuan and continuing to give "buy" rating.
Risk hint: policy promotion is not as expected or changed, and competition in the water solid waste market intensifies.