Water treatment operation service revenue grew steadily, with a dividend rate of up to 8%
Beikong Water announced its 2022 results on March 30: revenue fell 10% year-on-year to HK$24.982 billion, mainly due to a 52% year-on-year decline in construction service revenue; Guimu's net profit fell 67% year-on-year to HK$1,374 million (lower than Huatai's forecast of 30.9%), mainly due to one-time non-cash losses of HK$1.09 billion due to dilution of the company's shares in Shangao Renewable Energy Group (1250HK). The company's dividend rate corresponding to DPS in 2022 was as high as 8%. As the company's 2022 performance fell short of expectations, we lowered the company's net profit to the parent for 2023-2024 to HK$29.3.2 billion (previous value: HK$40/4.8 billion), and introduced the net profit of 2025 of HK$3.6 billion, corresponding to the 2023-2025 EPS of HK$0.29/0.32/0.35.
We gave the company a target PE of 9x 2023, which is higher than its five-year historical PE average (6x) because we believe the company's asset-light transformation will help further increase its value. We raised our target price from HK$2.40 (based on 12 times 2022 PE) to HK$2.61. “Buy”.
Revenue from sewage and reclaimed water treatment services maintained double-digit growth
In 2022, the company's sewage and reclaimed water treatment service business revenue increased 21% year over year to HK$9.874 billion, accounting for 40% of total revenue; of this, China/overseas revenue was +22%/+3% year on year. Under the difficult environment of rising electricity and pharmaceutical prices, the gross margin of the company's business in China fell only 1 percentage point over the same period last year to 57%. As the company transitioned to asset-light operations, revenue from the construction services business fell 52% year on year to HK$6.085 billion in 2022, accounting for 24% of total revenue (down 20 percentage points from year on year). Gross margin was 18%, down 2 percentage points year on year. The increase in the share of revenue from high-margin businesses led the company's overall gross margin to increase by 2 percentage points year-on-year to 39% in 2022. Affected by the external environment, the company's water environment treatment consulting services and equipment sales revenue fell 16% year-on-year in 2022.
Japanese design production capacity continues to grow, and the high dividend rate is worth paying attention to
By the end of 2022, Beikong Water's daily design production capacity reached 44.29 million tons/day, adding 3.41 million tons/day of design capacity throughout the year. Among them, BOT/PPP/TOT/commissioned operation projects had increased 1,355/13/67/1234 million tons/day respectively. In 2022, due to various reasons such as the expiration of the project period, the total design capacity of the Group's withdrawal from the project involved 578,000 tons/day; due to changes in project rules, the Group reduced its long-term uninvested daily design capacity by 3.435 million tons/day. In 2022, the company's DPS was 15.7 HK cents, maintaining the 2021 DPS level while EPS declined by a large percentage year over year. The corresponding dividend ratio of the company's DPS in 2022 was as high as 8%.
The target price was raised to HK$2.61 to maintain the “buy” rating
We gave the company nine times the 2023 target PE and raised the target price to HK$2.61. Maintain a “buy” rating.
Risk warning: The progress of the project has fallen short of our expectations, and the asset-light transformation has been slower than our current expectations.