Items:
On the evening of October 28, 2022, the company disclosed its third-quarter report for 2022. During the reporting period, the company achieved 15.198 billion yuan in main income, down 2.83 percent from the same period last year; the net profit returned to the mother was 3.252 billion yuan, up 66.04 percent over the same period last year; of which the single Q3 company achieved 5.273 billion yuan in main income, down 22.05 percent from the same period last year; and the net profit returned to the mother was 2.395 billion yuan, up 381.75 percent from the same period last year.
Comments:
New Zealand subsidiary delivery completed, light travel focus on the domestic market. As of 2022Q3, the delivery conditions stipulated in the agreement on equity transfer of the company's New Zealand subsidiary have been met, and the transaction has been completed, resulting in an investment income of RMB 2.498 billion; the impact on the return net profit is equivalent to RMB 1.796 billion, which is also the reason why the growth of the net profit of the company size during the reporting period significantly exceeded the operating income. We believe that on the one hand, this transaction will help the company to improve its cash flow, optimize its asset-liability structure, and reduce the cost of financing and capital; on the other hand, it will also help the company to optimize the allocation of resources and focus on the domestic environmental protection market to enhance its competitiveness.
Engineering business is under pressure, deducting non-year-on-year growth. Regardless of the investment income of the first New Zealand, the net profit of single Q3 company was 498 million yuan, an increase of 7.23% over the same period last year, mainly due to the slowdown of construction due to the epidemic situation, the decline in the number and scale of projects under construction and the influence of the one-way toll policy on Jingtong Expressway. With the improvement of the follow-up epidemic and the introduction of the compensation scheme for toll adjustment of Jingtong Expressway, the company's profitability is expected to be enhanced.
The expansion of REITs promotes the virtuous circle of investment and financing. On August 29, 2022, the board of directors agreed that the company should declare the newly purchased infrastructure assets in Infrastructure Public offering REITs and transfer some of the assets to Infrastructure Public offering REITs. The scale of this fund-raising is expected to be 9-1.3 billion yuan, and the proposed newly purchased infrastructure project is a sewage treatment franchise project in Changzhi City (with a total treatment scale of 275 million tons per day). At present, the application work is progressing smoothly. This expansion is expected to reduce the capital occupation of the company by holding assets, accelerate the return of funds, reduce the asset-liability ratio, and expand the scale of the business.
Investment advice: taking into account the impact of the sale of the New Zealand subsidiary, we have raised our profit forecast for 2022: the company's homing net profit is expected to be 3.75 billion yuan (the original value is 2.636 billion yuan). But at the same time, the epidemic situation and the adjustment of the toll policy of Jingtong Expressway have suppressed the company's profitability to a certain extent. while we lowered the 2023 profit forecast, we added the 2024 profit forecast: the 2023-2024 company's net profit is expected to be 2.629 billion yuan (the original value is 3.078 billion yuan) and 3.057 billion yuan respectively. Using the comparable company valuation method, select the representative water and solid waste enterprises (Xingrong Environment, Hanlan Environment and Chongqing Water) for comparison, and because the company is the industry leader and has many high-quality reserve projects, it should enjoy a certain valuation premium, giving the company 10 times PE, with a target price of 3.60 yuan in 2023.
Risk hints: increased competition and a sharp decline in subsidies in the solid waste sector due to policy; decline in profits in the sewage and water supply sector caused by policy and other factors; and the project production schedule is not as expected.