Net profit returned to the mother in 2022 increased 7% year on year. Reiterating the “buy” rating, Green Dynamics recorded operating income/net profit of RMB 45.67/745 million in 2022, -9.7%/+6.7% year on year. The net profit returned to the mother was lower than Huatai's forecast of 14.3% (Huatai's forecast: RMB 869 million). 22Q4 achieved operating income/net profit attributable to the mother of RMB 1,200 million, an increase of 0.2% over the previous year, and net profit of RMB 154 million (21Q4: RMB -6.76 million). We expect net profit to be returned to the mother in 23-25 RMB 839/998/1,043 million (previous value: RMB 942/1,014/100 million yuan). For Green Dynamics H shares (1330 HK), we gave 7.1 times the 2023 forecast PE, and the corresponding target price was HK$4.87 (previous value: HK$5.92), reaffirming the “buy” rating. For Green Dynamics A shares (601330 CH), we gave 14.3 times the 2023 forecast PE. The corresponding target price was RMB 8.58 (previous value: RMB 10.42), reaffirming the “buy” rating.
The decline in projects under construction led to a year-on-year decline in revenue, a steady increase in profits guaranteed by high-quality operations, a decline in the number and scale of projects under construction, and a decrease in construction revenue from PPP projects, leading to a year-on-year decline in the company's annual revenue. In terms of revenue composition, solid waste treatment revenue was RMB 2,820 million, +7.7% year on year, gross margin was -8.6pp to 50.7% year on year; PPP project construction revenue was RMB 1,747 billion, -28.0% year on year, and gross margin was +0.3 pp to 8.1% year on year. We believe that the volume of projects under construction fluctuates in the short term, but the steady development of solid waste treatment operations is expected to guarantee a continuous increase in net profit of the mother in 23-25.
Waste disposal volume/feed-in capacity/steam supply increased simultaneously, and project construction progressed in an orderly manner to the company's disposal of 11.4 million tons of garbage in 2022, +8.2% year on year, achieving power generation/feed-in capacity of 42.4/3.48 billion kilowatts, an increase of 5.1%/4.6% over the previous year. According to our estimates, the annual tonne of feed-in electricity reached 305 degrees. The expansion of the steam supply business has achieved remarkable results, with a cumulative total of 301,800 tons of steam supplied to foreign countries throughout the year, an increase of 116% over the previous year. In 2022, the Enshi project was completed and put into operation, adding 1,200 tons/day of production capacity. Construction of 5 projects including Shuozhou progressed in an orderly manner. According to the company's February 2023 announcement, the company plans to acquire five waste-to-energy projects including Lanzhou Fengquan. Among them, the 2021 revenue/net profit of the Lanzhou Fengquan project was RMB 23/110 million. The company places equal emphasis on internal development and outreach, and there is still room for improvement in the scale of operations.
State subsidy repayments increased by more than 500 million yuan year on year. Net operating cash flow was +135%, the company's accounts receivable in 2022 were -1.0% year on year to 1,514 million yuan, and contract assets were +27.7% year on year to RMB 291 million, mainly due to the fact that the country's renewable energy subsidy electricity bill was not included. At the end of December, the company received RMB 535 million in national subsidy payments. The total amount of national subsidy repayments for the whole year increased by RMB 515 million over the same period last year, and construction expenses for PPP projects decreased, jointly driving net operating cash flow of +134.9% year-on-year to RMB 1,210 million. National subsidy payments have accelerated throughout the year, cash flow has improved markedly, and the company may face a revaluation.
Risk warning: garbage disposal volume and feed-in electricity volume are lower than expected, gross margin of solid waste treatment is lower than expected, and the decline in construction revenue exceeds expectations.