3Q22 performance is slightly lower than we expected.
The company announced 3Q22 results: 3Q22 income increased 9.5% with 4.027 billion yuan, net profit from home decreased by 32.1% with 390 million yuan, 3Q22 income increased by 11.8% with 11.83 billion yuan, and net profit from home decreased by 44.1% with 1.043 billion yuan. The results were slightly lower than we expected, mainly due to the difficulty of material collection under the disturbance of the epidemic and the decline in metal prices.
Trend of development
The epidemic superimposed the downward impact of metal prices, and the company's revenue growth slowed down. On the one hand, the epidemic affects the upstream waste production and waste collection and transportation, and makes the company's capacity climbing progress lag. On the other hand, copper prices have fallen significantly since 6M22, considering that the company's metal copper revenue accounts for a relatively large proportion, we expect the price of 3Q22 resource products to be under pressure. Due to the resonance of many factors, such as the lower-than-expected material collection and production capacity, and the decline in the price of end products, the company's 1-3Q revenue grew by 11.8% compared with the same period last year, which slowed sharply compared with the same period last year.
Profit level improved month-on-month, but the overall pressure is still under pressure, 1Q23 is expected to gradually repair. 3Q22's gross profit margin is 17.7%, month-on-month + 1.2ppt, year-on-year-4.8ppt, has shown marginal improvement; net profit margin 9.6%, month-on-month + 3.3ppt, year-on-year-5.9ppt. 1) the decline in the company's gross profit margin is mainly affected by the decline in metal prices. At present, the copper price center has declined significantly, taking into account the company's inventory cycle, we expect that the company's raw material inventory priced at higher metal prices is expected to be digested within half a year, and the company's profitability from 1Q23 is expected to be improved to some extent. Looking ahead, the downside risk of non-ferrous metal prices still exists, and the company partially hedges or hedges against the downward price pressure to some extent. 2) expenses increased compared with the same period last year, while other investment income decreased compared with the same period last year. The sales / management expense rate of 1-3Q22 company compared with the same period last year + 0.1/+0.5ppt to 0.3% to 2.8%; other income and investment income respectively decreased by 190 million yuan compared with the same period last year, mainly due to the reduction of government subsidies and the recognition of one-time investment income in the same period last year; in addition, the company set aside 170 million yuan for inventory price reduction (vs.
Last year, 8.85 million yuan), further driving down the company's net profit.
The advantage of deep resource utilization has been expanded, and the metal resource utilization business has continued to expand. During the reporting period, the company's Lanxi self-supporting project was consolidated, and the company's deep resource utilization capacity was further improved. we are optimistic that the company will increase the proportion of self-supply of raw materials and broaden the profit space of the resource utilization business. In addition, the company actively arranges the lithium electricity recycling business, and the 40,000-ton new energy vehicle waste power battery disassembly project has been put on record in Fuzhou, Jiangxi Province. in addition, the company has approved 15000 tons of refined nickel sulfate, 15000 tons of refined cobalt sulfate and 790 tons of lithium carbonate production capacity, of which nickel sulfate production line has been put into production. We are optimistic about the extension of the fine metal extraction ability and multi-metal cooperative treatment ability of the metal hazardous waste resource leader to the field of lithium battery recovery.
Profit forecast and valuation
Taking into account the short-term pressure on gross margin, we cut the company's net profit by 6.2% to 1.608 billion yuan / 2.349 billion yuan in 2023. The current share price corresponds to a price-to-earnings ratio of 8.9 times 2022 Universe's 2023 price to earnings ratio.
Maintain an outperform industry rating, corresponding to a downward target price of 5.5% to 5.2 yuan, corresponding to a price-to-earnings ratio of 17.4 times earnings in 2023, which is 33.0% higher than the current stock price.
Risk
Metal prices fluctuated, the progress of project construction was lower than expected, business expansion was not as expected, and the epidemic situation was repeated.