Event summary: On March 30, the company released its 2022 annual report. It achieved revenue of 6.023 billion yuan in 2022, an increase of 2.54% over the previous year; the net profit of the mother was 1,139 million yuan, a decrease of 8.00% over the previous year; after deducting the net profit of the non-return mother was 1,116 million yuan, a decrease of 8.74% over the previous year. After excluding the influence of the one-time confirmation of attribution to the previous year's subsidy factor, net profit attributable to the mother in 2022 increased 18.89% year on year, and net profit of non-return to the mother increased 18.28% year on year.

Production capacity was put into operation in an orderly manner, and operational efficiency continued to improve: by the end of 2022, the company had 54 waste incineration power generation projects on hand, with a total production capacity of 59,550 tons/day. Of these, 43 projects had been put into operation, with a total production capacity of 50,700 tons/day (including shares), of which 6450 tons/day was added in 2022. By the end of 2022, the company was under construction and preparing to have a production capacity of 8850 tons/day (including participation in shares). In 2022, wholly-owned and controlled projects treated 124.191 million tons of domestic waste, an increase of 15.59% over the previous year. The comprehensive capacity utilization rate reached more than 90%, achieving a total power generation of about 50.24 million kilowatts, tons of waste-to-energy generation capacity of 404.54 kWh/t (if heating projects are not considered, about 422 kWh/t), tonnes of waste feed-in electricity capacity increased 3.62% and 3.56%, respectively. The average plant power consumption rate was 12.4%, maintaining the industry's leading level. The company's overall project operation is stable, and the results of cost reduction and efficiency are remarkable.

A breakthrough has been achieved in overseas markets, and small-scale incineration technology is worth looking forward to: in the field of EPC engineering and construction, Sanfeng Cavanta signed the Vietnam Seraphine Project (3 x 615 tons/day); in the field of equipment sales, it signed a number of Indian projects, providing 14 incineration line products with a total treatment capacity of 9750 tons/day; Sanfeng Technology signed 25 supply contracts for sewage treatment systems and kitchen (food waste) equipment, with a total sewage treatment capacity of about 43,000 tons/day. Overall, the company has achieved further market breakthroughs, and it is worth looking forward to the continued expansion of overseas business. In remote areas such as counties and rural areas, small-scale incineration equipment has broad market application space. As a leader in waste incineration power generation equipment, the company is actively promoting research and development of small-scale waste incineration resource technology and equipment in counties, exploring a sustainable and stable business model for miniaturization projects, which is expected to contribute new profit growth points in the future.

Investment suggestions: Excluding the impact of subsidies, profits increased year-on-year throughout the year, and repayments maintained a good trend; incineration production capacity was put into operation in an orderly manner, and operating efficiency improved significantly; there have been breakthroughs in overseas markets, and research on small-scale incineration equipment is expected to contribute to increased performance. Based on the company's operating conditions, adjust the company's profit forecast. The company's 23/24 EPS is expected to be 0.78/0.85 yuan/share (previous value 0.71/0.74 yuan/share), with an additional 25-year EPS forecast value of 0.93 yuan/share. Corresponding to the closing price of PE on March 30, 2023, PE was 8.7/8.0/7.3 times, respectively. Considering the stable operation of the company's project as a whole, the company was given 11.0 times PE in 2023, with a target price of 8.58 yuan/share, maintaining the “careful recommendation” rating.

Risk warning: The progress of project construction and operation falls short of expectations; risk of slowing industry growth; risk of slowing down the pace of inclusion in the national supplement catalogue; risk that major solid waste business development falls short of expectations.