1H22 performance is lower than we expected.
The company announced 1H22 results: revenue 7.804 billion yuan, year-on-year + 13.5%, month-on-month + 7.5%; return to mother net profit 657 million yuan, corresponding to earnings per share 0.12 yuan, year-on-year-49.7%, month-on-month-34.8% Among them, the revenue in the second quarter was 4.003 billion yuan, + 3.3% from the same period last year, + 5.3% from the previous year, and the net profit from the mother was 252 million yuan,-65.9% from the same period last year, and-37.6% from the previous quarter. The company's performance was lower than we expected due to logistics difficulties caused by the epidemic, rapid pullback of copper prices, rising costs, and so on.
Trend of development
Revenue is rising against the trend and continues to expand its business areas. The company's 1H22 hazardous waste disposal service business revenue was 7.372 billion yuan, + 14.2% year-on-year; revenue from clean energy equipment business was 385 million yuan, + 6.35% year-on-year. At the front end of the hazardous waste business, the company has an existing production capacity of 1.78 million tons, ranking first in the same industry, with sufficient production capacity under construction. The main projects include: Chenzhou, Hunan (370000 tons), Dalian, Liaoning (300000 tons), and Deyang, Sichuan (300000 tons). The total production capacity currently put into operation is 2.75 million tons. At present, the company is actively arranging the disposal market of hazardous wastes such as waste liquid and waste residue produced by power storage battery recycling and disassembly units. By the end of August, the company's planned "40,000 tons / year new energy vehicle waste power battery disassembly project" has been put on record. We believe that the company's continued vertical and horizontal business expansion will ensure long-term performance growth.
A number of factors led to pressure on the company's profits in the first half of the year. The company's 1H22 gross profit is 1.339 billion yuan,-20.2% compared with the same period last year, the gross profit margin dropped 7.3ppt to 17.2% compared with the same period last year, and the net profit returned to the parent was-49.7% to 657 million yuan compared with the same period last year. We think the reason is: (1) there is a relatively rapid correction in copper prices, and the company only hedges some metal copper, and the unhedged part affects profits. We estimate that the gross profit of copper units has dropped from 7600 yuan / ton in the same period last year to 1100 yuan / ton this year. (2) the upstream enterprises stop work and production, which affects the material collection of the company, the slope climbing progress of the new project capacity lags behind, and the capacity utilization rate is insufficient. (3) Logistics factors lead to the increase of the price of auxiliary materials. (4) as a result of the epidemic, the government subsidy lags behind. The total amount of government subsidy received by the company 1H22 is about 165 million yuan, which is lower than that of 293 million yuan in the same period last year.
Profit forecast and valuation
Taking into account the upward cost of the company and the lag in the climbing progress of new project capacity, we cut the net profit of 2022E/2023E by-30.8% /-17.4% to RMB 2.476 billion, and the current share price corresponds to the price-to-earnings ratio of 13.9 pm in 2023. Maintain an outperforming industry rating and lower its target price by 12.0% to 5.50 yuan, taking into account the company's long-term growth potential, corresponding to the price-to-earnings ratio of 17.2 times earnings in 2023, which is 23.9% higher than the current share price.
Risk.
Metal prices fluctuated, project landing and capacity climbing were not as expected, and competition in the industry intensified.