Event description
Sanfeng Environment achieved operating income of 4.261 billion yuan in the first three quarters of 2022, down 4.70% from the same period last year, and its net profit was 860 million yuan, down 21.50% from the same period last year. It deducted 842 million yuan from non-parent net profit, down 22.43% from the same period last year. Of this total, the operating income of Q3 was 1.403 billion yuan, up 2.19% from the same period last year, and the net profit was 271 million yuan, down 19.84% from the same period last year. The non-return net profit was 262 million yuan, down 21.50% from the same period last year.
Event comment
In the same period last year, the one-time state subsidy base was relatively high, excluding this effect, the net profit of returning home increased by 20.41% compared with the same period last year. Sanfeng Environment adopts a conservative state subsidy treatment method, and the income of the state subsidy corresponding to the project that is not included in the list of state subsidy (recognized cost) will be recognized at one time until the project is formally included in the previous period of state subsidy. As the cost has been spent in the previous period, the one-time recognition of the state subsidy similar to pre-tax profit has a greater flexibility in contributing to the gross profit margin and net profit. The company's parent net profit in the first three quarters decreased by 21.50% compared with the same period last year, due to the fact that the Baiguoyuan, Fuling, Korla projects and their affiliated units were included in the list of renewable energy power generation subsidy projects in the same period last year. Excluding the subsidy factors confirmed at one time, the company's parent net profit in the first three quarters of 2022 increased by 20.41% compared with the same period last year, mainly because the company added more new projects and contributed operating profits.
Solid waste projects continue to be put into operation, and the capacity of garbage disposal continues to improve. In the first half of the year, Xiushan Project, Xichang Project (Phase II) and Wulong Project, which are controlled by the company, were officially completed and put into operation, with an additional garbage disposal capacity of 1600 tons per day. at the same time, the Fushun Project, Anyang Project and Jiaozuo Project, which the company participated in, have also been connected to the grid to generate electricity. By the end of June 2022, the company has put into operation 37 waste incineration power generation projects (including shareholding projects), with a total design treatment scale of about 43150 tons per day, including 33 projects controlled by the company, with a total design treatment scale of about 35000 tons per day. The company is building and preparing to build a total of 15 waste incineration power generation projects (including shareholding projects), with a total design scale of 13700 tons per day, of which Qijiang project, Hechuan project, Huidong project, Fushun project and Anyang project have entered the trial operation stage. the new projects will lead to the continuous improvement of future operating performance.
One-time income declined and gross profit margin returned to normal. The company's gross profit margin in the first three quarters was 32.24%, a year-on-year decline of 5.93pct, mainly affected by the one-time state subsidy last year, but slightly higher than the 32.11% gross profit margin in the first three quarters of 2020. As the project matures and capacity utilization increases, the operating business gross profit margin may slowly increase.
The rate of financial expenses has increased, while the rate of management expenses has declined. In the first three quarters of 2022, the company's expense rate was 10.60%, a year-on-year decrease of 2.62pct, of which the sales expense rate decreased slightly to 0.25%, and the management and R & D expense rate decreased 3.34pct to 4.97%. This is partly due to the company's adjustment of fixed assets repair expenses from management expenses to operating costs and an increase in financial expenses rate by 0.82pct to 5.39%. This is mainly due to the increase in borrowing funds during the construction peak, and the financial expense rate is expected to decrease as the company's projects are gradually put into production and construction capital expenditure declines. Cash flow continues to maintain an excellent level, with the company's cash-to-cash ratio and net-to-cash ratio of 104% and 130% respectively in the first three quarters.
It is estimated that the return net profit of the company from 2022 to 2023 is 1.045 billion yuan and 1.342 billion yuan respectively (including the expected 300 million yuan one-time state subsidy income impact), corresponding to PE 10.8x and 8.4x respectively, maintaining the "buy" rating.
Risk hint
1. The project schedule is lower than the expected risk.
2. Equipment orders are converted into lower-than-expected revenue.