Conch Environmental Protection listed in parallel on March 30, 2022, is currently the largest cement kiln collaborative disposal service provider in China, in the rapid growth period of project acquisition and capacity release. By the middle of 2022, the company has put into production of 5.61 million tons / year of solid and hazardous waste capacity, and has signed a contract capacity of about 1145 million tons / year.
The collaborative disposal process of cement kiln is the subverter of the traditional incineration-landfill technology. after 4 years of economic decline, the traditional competitors decline and the price of hazardous waste disposal reaches the bottom. Cement kiln collaborative disposal technology has both economic and environmental advantages, covering 80% of hazardous waste disposal. The cost of environmental protection of conch is excellent, the cost of disposal of hazardous waste is about 600yuan, while the cost of traditional disposal is about 1500 yuan, the traditional competitors have declined, close to loss, and accelerated clearance.
Conch environmental protection gives full play to the advantages of technology, resources and the vitality of private enterprises, and still maintains a high growth rate & strong profits. Conch environmental protection relies on Anhui Conch Cement and China National Building Material (cement clinker production capacity ranks first or second in the country), is rich in cement kiln resources, and gives full play to the flexibility of the private enterprise system. In the past five years, the amount of hazardous waste disposal is estimated to have increased 7 times to 1 million tons + (forecast in 2022). It is expected that the company's ROE will still reach 22% in 2022, and the cagr of hazardous waste disposal in the next 6 years is expected to increase by 34%.
In 2028, it is aimed at 30 million tons of contracted production capacity, with profit cagr=25% under neutral assumptions. Among them, the solid waste is 10 million tons, which is 4 times of the production capacity, and the general hazardous waste is 10 million tons, which is 3.5 times that of the production capacity. Another planned sludge / fly ash production capacity of 30 million tons, non-cement kiln cooperation business more blossoms. From the perspective of market space, if the general hazardous waste production capacity of 10 million tons is completely released, it is equivalent to the company eating nearly 40% of the hazardous waste disposal market share, and the market share in the total hazardous waste market is about 13.7%. Under the neutral assumption (the purchase price of hazardous waste is the same as ≈ 1500 yuan / ton), the company's net profit will reach 2.6 billion yuan in 2028 and CAGR=25% in 2022-2028. When the price of hazardous waste disposal increases by 100 yuan, the net profit can be increased by 170 million yuan.
Our point of view: competitors are declining, the market for hazardous waste disposal has hit bottom, collaborative disposal of cement kilns will quickly replace traditional disposal, and conch environmental protection is still in a period of rapid growth in the acquisition of projects and capacity release, entering the harvest period after "horse racing enclosure". Anhui Conch Cement holding Conch Environmental Protection has also dispelled the hidden worries of the market on the distribution of long-term benefits.
The boom and valuation are expected to reverse. We expect the company's annual return net profit in 22-23-24 to be 6.7 yuan 9.3 / 1.26 billion yuan, respectively, + 15.9%, 39.3% and 34.6%, respectively, compared with the same period last year. We value our 2023 forecast EPS 20x with a target price of HK $11.76 and maintain a "buy" rating.
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.