Matters:
Dongzhu Ecology announced its 2021 annual report: In 2021, the company achieved revenue of 2,711 million yuan, +15.95% year on year; Guimu's net profit was 481 million, +26.40% year on year; operating cash flow was 408 million, an increase of 431 million yuan over the previous year.
At the same time, the report for the first quarter of 2022 was released: 2022Q1 achieved revenue of 430 million, -17.91% year on year; net profit of the mother was 82 million, -18.07% year on year; operating cash flow was 32 million, +169 million over the previous year.
Commentary:
Performance growth in 2021 slightly exceeded expectations: the company achieved revenue of 2,711 million yuan in 2021, +15.95% year on year; net profit of 481 million yuan, +26.40% year on year; net profit of non-return mother was 479 million, up 22.66% year on year; comprehensive gross profit margin was 29.69%, +0.73pct year on year, and profitability increased slightly. By business, ecological restoration revenue was +13.04% year on year to 1,366 million, gross margin was +1.43pct to 29.96% year on year; municipal landscape revenue was +21.05% year on year to 1,303 million, gross margin was +1.56pct to 29.93% year on year; revenue from other businesses was -38.11% year on year to 022 million, and gross margin dropped sharply to -0.95%. In terms of orders, the company signed a new project amount of 2,355 million yuan in 2021, +24.87% over the same period last year, mainly in East China, Central China and Southwest China.
Interest income increased a lot, and cash flow was under pressure: the company's net interest rate in 2021 was 17.73%, +0.94pct year on year. Under the sharp increase in impairment losses, the profit level still increased. We think the main factors were: 1) the increase in gross margin level; 2) the increase in interest income led to a sharp decrease in financial rates. The company's 2021 was -2.76pct compared to the previous year, where management fees, R&D rates, sales rates, and financial rates were +0.31pct, -0.09pct, 0pct, and -2.98pct, respectively. Net operating cash flow was 408 million, compared to 431 million, mainly due to the increase in investment in engineering projects during the period and the delay in settlement and receipt due to the floods.
Q1 revenue and performance declined due to the pandemic, and profits continued to improve: the company achieved revenue of 430 million yuan in Q1 2022, -17.91% year on year, net profit of 82 million yuan, and -18.07% year on year. Affected by the epidemic, revenue and performance all declined, but profit improved significantly. The 22Q1 gross profit margin and net interest rate were 29.74% and 18.91%, respectively, up 1.83 pct and 0.13 pct from the previous year. The cash flow situation also improved. Net operating cash flow in 22Q1 was 32 million yuan, a year-on-year decrease of 169 million yuan. In terms of orders, the company signed 3 new projects in the first quarter, with a total amount of 1,727 million yuan, a year-on-year increase of 262%.
Continuously improve the layout of the industrial chain, forestry carbon sinks welcome new opportunities: 1) Highlight the core of ecological projects and vigorously promote EPC: with ecological restoration projects as the core, use the EPC project model to find deep value in the industrial chain, and further increase the number of ecological restoration orders received. 2) Actively lay out forestry carbon sinks: In 2021, the company established a new subsidiary, Dongzhu Carbon Bank (Shanghai), and reached strategic cooperation with the Shanghai Environmental Energy Exchange and Green Technology Bank (Shanghai) to jointly complete related topics and research; in addition, “Strategic Cooperation Agreements” were signed with the Sichuan Yangtze River Afforestation Bureau and the Ninghua County People's Government respectively.
Profit forecasting, valuation and investment ratings: The company has plenty of orders in hand, and financial data remains healthy. We expect the company's EPS for 2022-2024 to be 1.28, 1.49, and 1.73 yuan/share (the original values in 22-23 were 1.23 and 1.43 yuan/share), and the corresponding PE is 7x, 6x, 6x. According to the historical valuation method, the 2022 valuation was given 10 times, and the target price was 12.8 yuan, maintaining the “strong push” rating.
Risk warning: Risk of declining investment in the garden industry, new project undertakings falling short of expectations, project repayment falling short of expectations, etc.
