We expect that the national subsidy arrears and the continued deterioration in the operating conditions of the hazardous waste sector will clearly put pressure on profits in the second half of the year. Furthermore, the epidemic in the second half of the year disrupted the progress of the construction period, causing revenue during the construction period to decline and the increase in US dollar financing costs, which also had a negative impact on the company's profits.
The scope of the independent collection and storage pilot was expanded, and the income quality of the biomass sector continued to improve. The company continues to expand the pilot scope of independent fuel collection and storage for biomass comprehensive utilization projects, reached cooperation with local straw collection and storage units, and jointly expanded the “straw cake” in the form of front-end storage, village-enterprise cooperatives, broker warehouses, etc., and its clean energy power plants set up special classes. On the basis of the developed straw resources within 15 kilometers, the development radius was expanded to 30/50/80 km. The quality and quantity of straw collected has improved markedly.
Market demand in the hazardous waste sector is weak, and the competitive pattern continues to deteriorate. The epidemic has disrupted the industrial production of upstream waste production enterprises. The overall waste production volume is insufficient. Under weak market demand, competitiveness has intensified, prices for hazardous waste disposal have declined further, and the overall waste collection and profitability of the hazardous waste sector is under pressure.
Our point of view:
We lowered the company's profit forecast. The company's net profit for 22/23/24 is estimated to be HK$31/76/900 million respectively, with year-on-year growth rates of -72.5%/+149.3%/+18.1%, respectively. The stock price on January 20 (HK$1.97) corresponds to the expected PE of 5.3x in 2023. It is concerned about its asset-light transformation and continued improvement in cash flow to maintain a “prudent increase in holdings” rating.
Risk warning: transformation business development falls short of expectations, rising raw material prices, repeated epidemics