Core views:
Performance has continued to grow steadily, and the ability to make cash is outstanding. The company released its report for the third quarter of 2022, achieving revenue of 4.942 billion yuan in the first three quarters (+8.6% year-on-year). Guimu's net profit was 1,375 million yuan (+11.0% year-on-year), and revenue was 1,782 million yuan in the third quarter alone (+2.0% year-on-year).
Guimu's net profit was 537 million yuan (+1.2% year-on-year). The increase in the company's performance was mainly due to various factors such as the release of wastewater+environmental protection production capacity and the increase in the average price of sewage treatment. Furthermore, the first three quarters achieved net operating cash flow of 1,979 billion yuan (+36.0% year-on-year), with outstanding hematopoietic capacity.
The water business has maintained steady expansion, and its growth characteristics are still outstanding despite the sharp rise in volume and price. The volume of new sewage projects launched and the rise in water prices at the end of 2021 are the core reasons for revenue growth since this year. As of the end of the first half of 2022, the scale of the water supply and drainage projects operated, under construction and proposed by the company was about 8.5 million tons per day, and the scale of the reclaimed water utilization project was 1.02 million tons per day. The scale of the water and environmental protection business ranked among the highest in the country. Also, the company recently announced the commencement of an investment of 80,000 tons/day in the second phase of the fifth reclaimed water plant and the 20,000 ton storage tank project, with an investment amount of 1,338 million yuan, and the investment potential is outstanding.
The environmental protection industry has increased growth vitality, and equity incentives have demonstrated determination to develop. (1) As of 2022 H1, the company's waste incineration business achieved revenue of 212 million yuan (+12.79% year-on-year), with an operating capacity of 6,900 tons per day, and a production capacity of 7,500 tons/day not yet in operation; (2) the leachate and sludge disposal business relied on a rise in production capacity and maintained high growth. 2022H1 achieved revenue of 241 million yuan and 140 million yuan respectively, up 49.2% and 39.6% year on year. The environmental protection business has become another important growth pole for the company. In addition, the company granted 16.99 million restricted shares to 556 executives and core cadres, and the revenue performance assessment target from 2022 to 2024 reached 71/80/9 billion yuan.
Profit forecast and investment advice: We expect the company's net profit from 2022-2024 to be 17.32/19.92/2,274 billion yuan, corresponding to PE 8.57/7.45/6.53 times. The company is a leader in water services. Its current operating projects are profitable and actively expanding its environmental protection business with Dongfeng in the industry. The equity incentive goal shows its determination to develop. Referring to the company's growth and peer valuation, the company was given a PE valuation of 12 times in 2022, with a reasonable value of 6.96 yuan/share, maintaining the “buy” rating.
Risk warning. The release of production capacity fell short of expectations, interest rates rose, and the progress of offsite expansion fell short of expectations.