Event description

The operating income of Green Power in the first half of 2022 was 2.263 billion yuan, down 9.72% from the same period last year, and the net profit was 417 million yuan, down 4.80% from the same period last year, deducting 414 million yuan from non-parent net profit, an increase of 4.24% over the same period last year. Of this total, Q2 realized operating income of 1.157 billion yuan, down 13.78% from the same period last year, and its net profit was 236 million yuan, an increase of 3.31% over the same period last year, deducting 235 million yuan of non-return net profit, an increase of 22.52% over the same period last year.

Event comment

Affected by the epidemic, the decline in construction revenue is a drag on performance. From the perspective of revenue and business in the first half of the year, 1) Construction income was 892 million yuan, a decrease of 28.88% compared with the same period last year, mainly due to the delay in project construction due to the epidemic of COVID-19, and the decrease in the number and scale of projects under construction in this period compared with the same period last year. Construction income decreased by 362 million yuan 2) the operating income was 1.171 billion yuan, an increase of 9.39% over the same period last year, mainly due to the addition of Huizhou Phase II project, Dengfeng, Jinsha, Laizhou and other operating projects in the first half of the year. However, due to the impact of the epidemic, the capacity of some new projects climbed slowly, and the growth rate of operating income was relatively low. In the first half of the year, the company handled 5.4954 million tons of domestic waste, an increase of 8.25% over the same period last year. An increase of 4.82% over the same period last year.

The proportion of construction business has decreased and the comprehensive gross profit margin has increased. The gross profit margin of the company in the first half of the year was 36.01%, which was significantly lower than that of 59.91% in the same period last year, mainly due to the change of accounting recognition standards. Under the new accounting recognition standards, the gross profit margin of 2021H was 33.16% and 2022H, which was higher than that of the same period last year. The main reasons are as follows: 1) affected by the epidemic, the construction business with low gross profit margin has decreased, while the proportion of solid waste operation with high gross margin has increased. 2) the company's new projects are mainly expansion, the capacity climbing cycle of the project is relatively short, and the new projects are relatively high-quality. During the first half of the year, expenses were relatively stable, of which management costs increased by 10.84% over the same period last year, and financial expenses increased by 2.63% over the same period last year.

In-hand projects gradually put into production to support the continued growth of the company's performance. The company added 7500 tons / day of incineration capacity in 2021, and there were no new projects put into operation in 2022. By the end of June 2022, the company operated 31 incineration projects with a production capacity of about 34,000 tons / day, 6 projects under construction, with a total capacity of 6600 tons / day, and more than 10,000 tons / day of preparatory projects. The gradual commissioning of hand production capacity will support the continuous improvement of the company's performance.

The logic of marginal improvement in the waste incineration industry. 1) We believe that the competitive allocation of state subsidies will not affect the profitability of the waste incineration industry, on the contrary, the cash flow of the project will be improved (garbage disposal fees will be charged in a more timely manner), and the worries leading to the downward valuation of the industry may be dispelled. 2) according to the direction of the government expenditure budget at the central level in 2022, this year or partially solve the historical state arrears of waste incineration enterprises, ease the cash flow of enterprises, and bring financial support in the construction of new projects. Together, the two will drive the industry's valuation repair.

It is estimated that the company's net profit from 2022 to 2023 will be 887 million yuan and 1.06 billion yuan respectively, an increase of 27.08% and 19.50% respectively over the same period last year, with a corresponding PE of 11.78x and 9.86x respectively, maintaining a "buy" rating.

Risk hint

1. The project schedule is lower than the expected risk.

2. The risk of slope retrogression by state subsidy.