Description of the event
Sanfeng Environmental achieved operating income of 6.023 billion yuan in 2022, an increase of 2.54% over the previous year, net profit of Guimu was 1,139 million yuan, a year-on-year decrease of 8.00%, and net profit of non-Gimo was 1,116 million yuan, a year-on-year decrease of 8.74%. Among them, Q4 revenue was 1,762 million yuan, an increase of 25.65% over the previous year, net profit of Guimu was 279 million yuan, an increase of 95.79% over the previous year, after deducting net profit of 274 million yuan from non-return mothers, an increase of 99.14% over the previous year.
Incident comments
The one-time national subsidy base for the same period last year was high. Excluding this effect, the net profit of the mother increased 18.89% year-on-year. Mitsumine Environment uses a conservative national subsidy treatment method. For projects that are not included in the national subsidy list, the corresponding national supplement revenue (cost recognition) is not recognized, and the national supplement arrears accumulated in the previous period after the project is officially included in the national subsidy list will be recognized in one go. Since costs have already been spent in the early stages, the one-time confirmed state supplement is similar to profit before tax, and its contribution to gross margin and net profit is more flexible. The company announced that net profit attributable to the mother after deducting the impact of the one-time national supplement in 2022 was 997 million yuan, an increase of 18.89% over the previous year (calculated based on the calculation of net profit of 839 million yuan after excluding the impact in 2021), which means that in 2022, there was still a one-time national supplement that increased profits by about 142 million yuan.
Solid waste projects continue to be put into operation, and garbage disposal capacity continues to improve. In 2022, the company completed and put into operation 7 domestic waste incineration power generation projects (including 6 holding projects and 1 participating project), with a new domestic waste incineration treatment capacity of 6,450 tons/day. By the end of 2022, the company had put into operation 43 waste incineration power generation projects (including 7 participating projects), with a total design treatment capacity of 50,700 tons/day (holding 37,600 tons/day and participating in 13,100 tons/day). The company still has 11 waste incineration projects under construction and preparation, with a total treatment capacity of 8,850 tons/day, including 8 wholly-owned and controlled projects with a total treatment capacity of 4,900 tons/day, and 4 kitchen (food waste) waste treatment projects under construction.
Equipment sales at home and abroad continue to break through, leading to increased performance in the future. In 2022, Mifeng Cavanta signed 8 supply contracts for incinerators and complete equipment, with a total treatment capacity of 9,750 tons/day; Sanfeng Technology signed 25 supply, installation and commissioning (or EPC) contracts for sewage treatment systems and kitchen (food waste) equipment. Continued breakthroughs in equipment orders will bring increased performance to the future.
One-off income declined, and gross margin returned to normal levels. The company's consolidated gross margin in 2022 was 31.19%, a slight decrease of 0.52 pct over the previous year. Among them, the gross margin of the project operation business fell by 3.95 pct, which was greatly affected by last year's one-time national subsidy. It is expected that as the project matures and capacity utilization rate increases, the operating business gross margin may slowly increase.
Expense rates declined during the period, and cash flow was good. The cost rate for the company period in 2022 was 11.18%, down 0.55pct from the previous year, and the fee rate remained stable. Among them, the sales expense ratio decreased slightly by 0.11pct to 0.35%, the management and R&D expense ratio increased by 0.24pct to 5.56%, and the financial expense ratio increased by 0.42pct to 5.27%. The main reason was the increase in loan capital during the peak construction period. It is expected that as the company's projects are gradually put into operation and construction capital expenditure falls, the financial expense ratio may decrease. Cash flow continues to maintain an excellent level. The company's pay-to-cash ratio and net present ratio in the first three quarters were 105% and 163% respectively.
The company's net profit from 2023-2024 is estimated to be 1.22 billion yuan and 1.38 billion yuan respectively, and the corresponding PE is 9.4x and 8.3x respectively, maintaining the “buy” rating.
Risk warning
1. The risk that the project progress is lower than expected;
2. The conversion of equipment orders into revenue fell short of expectations.