Core views

The company is a listed company under the Henan Provincial Department of Finance and has formed a high-speed environmental protection dual business. The company's high-speed location advantage is obvious, and its profitability is relatively stable, which is expected to provide long-term impetus for the company's continuous development. In terms of environmental protection business, the company is based in Henan and is expanding the scale of incineration power generation operations through self-construction, mergers and acquisitions, etc. As of February 2023, the company has put into operation 28 waste incineration power generation projects, with a total treatment scale of 26,350 tons/day; the company is building 4 waste incineration power generation projects with a potential treatment scale of 2,600 tons/day. As of 202H, the company has completed the acquisition of 9 waste incineration projects of Zhengzhou Enlightenment Zero Carbon Company, with a total production capacity of 7,900 tons/day, covering Shandong, Hebei, Anhui, Chongqing and other provinces and cities.

Furthermore, the company has priority transfer rights for Enlightenment Environmental's eight incineration projects totaling 6,400 tons/day, and the scale of the waste-to-energy business is expected to expand further through mergers and acquisitions in the future. The company's net profit from 2022 to 2024 is estimated to be 1,168 billion yuan, 1,291 billion yuan and 1.44 billion yuan respectively, giving it a “buy” rating.

summary

High-speed environmental protection is the main business, and the company's profit has steadily increased

The actual controller of the company is the Henan Provincial Department of Finance, and its wholly-owned subsidiary, Henan Investment Group, is the largest shareholder of the company, with a shareholding ratio of 56.47%. The investment scope of Henan Investment Group covers seven fields. As a listing platform, the company mainly operates highway assets and waste incineration power generation assets. The company entered the environmental protection business in 2019, and at this stage it has formed a dual high-speed and environmental protection business. The company's main businesses are all operational businesses. Profitability is relatively stable, and profits are growing steadily with the scale of the project. In 2021, the company achieved net profit of 963 million yuan, an increase of 55.99% over the previous year; 2022Q3 achieved net profit of 831 million yuan, an increase of 13.84% over the previous year, and the company's profit increased steadily.

High-speed business profits are stable, providing impetus for the company's continuous development

The company's highway location advantage is obvious, mainly distributed in central and northern Henan Province. The total operating mileage of the three highways operated by Xu Pingnan Company reached 225 kilometers. Among them, the core Xu Pingnan Expressway is an important “bridge” of the “meter” shaped expressway network planned by Henan Province. It is directly connected to the main line of the Beijing-Zhuhai National Highway at the starting point, and plays an important role in connecting the Central Plains region and the central provinces. Affected by the epidemic in 2020 and 2021, the company's high-speed business revenue and profits declined in stages, but we judge that with the gradual optimization of epidemic prevention and control measures, the company's high-speed business operations are expected to pick up. The stable profit and cash flow contributed by the company's high-speed business is expected to provide long-term impetus for the company's continuous development.

Self-construction of waste incineration+acquisition go hand in hand. The business scale is rapidly expanding. The company is based in Henan, focusing on outsourcing, and the waste incineration business is developing rapidly. The company grasped the policy opportunities of Henan Jingmai Industrial Park and rapidly expanded the scale of its own incineration project. As of February 2023, the company is operating 28 waste incineration power generation projects, with a total treatment scale of 26,350 tons/day; the company is building 4 waste incineration power generation projects with a potential treatment scale of 2,600 tons/day. At the same time, the company entered the national market through acquisitions. As of 202H, the company had completed the acquisition of 9 waste incineration projects of Zhengzhou Enlightenment Zero Carbon Company, with a total production capacity of 7,900 tons/day. The projects covered Shandong, Hebei, Anhui, Chongqing and other provinces and cities. Furthermore, the company has priority transfer rights for Enlightenment Environmental's eight incineration projects totaling 6,400 tons/day, and the scale of the waste-to-energy business is expected to expand further through mergers and acquisitions in the future.

Profit forecasting

The company currently has sufficient waste incineration production capacity. In the future, it is expected that the scale of incineration operations will continue to be expanded through the commissioning of self-built incineration projects and mergers and acquisitions. The operating business will continue to contribute profits and maintain rapid profit growth. The company's highway business performance and stable cash flow provide strong support for the company's continuous expansion in the solid waste field. The company's net profit from 2022 to 2024 is estimated to be 1,168 billion yuan, 1,291 billion yuan and 1.44 billion yuan respectively. EPS is 1.82 yuan/share, 2.01 yuan/share, and 2.24 yuan/share respectively, giving it a “buy” rating.

Risk warning

Risk of the company receiving new business orders falling short of expectations; risk of policy promotion and implementation falling short of expectations; risk of declining financial disbursements for environmental protection; risk of fluctuations in traffic flow on expressways