Main points of investment
Conch Environmental Protection was listed as a parallel spin-off on March 30, 2022, with a closing market value of HK $17.8 billion. After the completion of listing, Conch Environmental Protection will continue to be mainly engaged in industrial solid and hazardous waste disposal business, the main operating entities are Wuhu Haichuang Environmental Protection and Yaobai Environmental Protection.
Our comments are as follows: revenue continued to grow rapidly in 2021, with year-on-year + 48.4% to 1.7 billion yuan; unit gross margin fluctuated slightly, year-on-year gross profit margin-5.8ppt to 59.8%. The net profit of return to the mother was 580 million yuan, + 23.4% compared with the same period last year.
The profitability of industrial solid waste is stable, and the sludge drying technology is expanded in an all-round way. In 2021, the disposal volume increased by 47.6% year on year to 14.45 million tons; the average price remained stable, inter-provincial transportation increased transport costs, ton disposal costs increased by 8 yuan over the same period last year, and gross profit per ton decreased by 9 yuan to 176yuan. The company will continue to strengthen the research on sludge drying technology, comprehensively expand the business development of contaminated soil, and give full play to the service capacity of co-disposal of contaminated soil.
In general, the competition for hazardous waste is fierce, and the unit price has dropped significantly in some areas. The amount of general hazardous wastes disposed of in 2021 was 623000 tons, an increase of 57.7 percent over the same period last year. The company lowered the unit price in order to seize the northwest market share, the unit price per ton decreased by 249 yuan to 1689 yuan compared with the same period last year, the disposal cost per ton increased by 6 yuan, and the gross profit per ton decreased by 255 yuan to 1104 yuan.
Sludge disposal business is growing at a high speed. The company acquired Binzhou oil sludge and Shanxi Bangda project, and the disposal volume increased by 138.7% to 111000 tons in 2021. The unit price of ton disposal decreased by 284 yuan to 1189 yuan compared with the same period last year. Bonda project cost control achieved remarkable results, driving the disposal cost per ton by 165 yuan and gross profit per ton by 575 yuan.
The fly ash project is still in the exploratory stage. The initial operation of Wuhu Haichuang project is still in the exploratory period, and the cost still has room for optimization. The disposal volume in 2021 is 51000 tons, the unit price per ton is 1136 yuan / ton, and the gross profit per ton is 182 yuan.
The three fees are stable. 1) in 2021, the company's ton sales expenses decreased by 3.6 yuan to 58.9 yuan compared with the same period last year; 2) if the listing expenses are excluded, the ton management expenses are basically the same as the same period last year, which is 91.0 yuan.
The operating cash flow is solid, the company is still in the expansion period, and capital expenditure has increased significantly. The net operating cash flow increased by 310 million yuan to 770 million yuan compared with the same period last year. Capital expenditure in 2021 was about 2.14 billion yuan, an increase of 680 million yuan over the same period last year. The cash balance in the account is 600 million yuan.
Our point of view: the coordinated disposal of cement kiln has both environmental and economic advantages and is ushering in a period of development opportunities. As the industry leader, Conch Environmental Protection is aiming at "the first large environmental protection group in China and the world's leading environmental protection group" and the strategy of "integrated multi-wing new momentum". With the characteristics of "high profit, high growth and light assets", government resources and limited cement kiln resources raise the threshold of industry access, which is conducive to stabilize the competitive pattern of the industry. We estimate that the company's annual return net profit in 22-23-24 will be RMB1.69 billion, compared with the same period last year, which is + 39.1%, 47.8% and 41.4%, respectively. It will be covered for the first time and given a "prudent overweight" rating, with a target price of HK $10.31, corresponding to a forecast PE of 20 times in 2022.
Risk hints: the epidemic repeatedly affects enterprise production and waste and inter-provincial transportation, project construction is not as expected, payback is not expected, market competition is intensified, potential environmental risks.