Incident: The company released its 2022 annual report. The company achieved operating income of 445 million yuan in 2022, -10.89% year on year; net profit of the mother was 38 million yuan, -65.43% year on year; diluted ROE was 2.52%, -4.9pct year on year.

Current revenue and profit levels are under significant pressure. We are optimistic that the long-term recovery of the company's performance will improve, and the company will achieve operating income of 445 million yuan in 2022, -10.89% year on year; net profit of the mother was 38 million yuan, -65.43% year on year; gross profit margin was 31% and net interest rate 8%, down 10pct and 14pct respectively from the previous year. The main reason why the company's revenue and profits are under pressure is: ① Subsidy confirmation: the company did not recognize revenue from additional subsidies corresponding to new projects that were not included in the subsidy list in the current period, involving an amount of 34 million yuan in '22 (24 million yuan in '21). ② Decline in revenue: Due to reasons such as the diversion of garbage from incinerators into the factory and insufficient gas production affecting power generation efficiency, etc., the company's power generation capacity reduction in '22 led to a decline in revenue. ③ Fixed costs: The fixed costs of the company's biogas power generation business account for a relatively high proportion (22-year cost composition: depreciation and amortization account for 38% of the total cost, wage and social insurance premiums account for 25%, and equipment maintenance costs account for 21%), making it difficult to flexibly adjust cost items as revenue falls. ④ New projects put into operation: The company's newly put into operation in the past two years are mainly small-scale projects. On average, the installed capacity of a single project put into operation has declined, and gross margin has declined due to pressure from scale effects. ⑤ Asset impairment: The company accrued 6.5 million yuan of fixed asset impairment, further affecting profit scale. ⑥ Non-operating expenses: Some project contracts expired, resulting in non-current asset damage and scrapping losses of 17 million yuan during the current period. The net profit returned to the mother after deduction was -48.44% year-on-year. We believe that asset impairment and non-operating expenses are one-time gains and losses. With the subsequent resumption of biogas power generation business and increased revenue from heat sales and carbon trading operations, the company's performance is expected to recover and improve.

Subsidy arrears lengthen the company's accounts receivable period. Under sound financial management, the company's operating cash payback is relatively good. According to the company's 22nd annual report, the company's accounts receivable were 435 million yuan, +0.69% year on year, accounting for 23% of total assets; 85% of these were renewable energy subsidized electricity prices, and repayment expectations were relatively good. Under sound financial management, the company received 474 million yuan in cash for the sale of goods and the provision of labor services in '22, and the net cash flow from operating activities was 166 million yuan, which was +6% and +36% respectively over the previous year.

The mobile energy storage heating business is on the right track, making full use of the collaborative advantages of the biogas power generation business. According to the company's 22-year report, the company has reached group-level cooperation with many large waste incineration companies and has reached heating cooperation with various types of heating companies. It is expected to contribute stable profits to the company's long-term development in the future. According to the company's convertible bond issuance brochure, the company's mobile energy storage vehicle project is expected to generate revenue of 1.05, 237, and 395 million yuan respectively in the 1st to 3rd year of production, accounting for 24%, 53%, and 89% of the company's revenue in '22, respectively.

With CCER speeding up the restart of Dongfeng, the company's carbon trading business can be expected to have a flexible profit margin. On March 30, the Ministry of Ecology and Environment issued the “Letter on Open Solicitation of Methodological Proposals for Voluntary Greenhouse Gas Emission Reduction Projects”, and CCER can be expected to restart at an accelerated pace. According to the company's 22nd annual report, 19 of the company's projects have now been registered as CDM projects, 14 projects have been registered with CCER, and several other projects have applied for CCER. We believe that the company's carbon trading business revenue will increase in the future.

Investment proposal: Based on factors such as the growth of the company's biogas landfill business or falling below historical levels, but the mobile energy storage business may contribute incremental performance, etc., we adjusted the company's net profit forecasts for 2023-2025 to 0.82, 1.23, 172 million yuan (previous values of 113 and 133 million yuan before 23-24), up 117.75%, 50.28%, and 39.81%, respectively; diluted EPS was 0.51, 0.77, 1.07 yuan, and the stock price corresponding to the April 6 stock price was 48.29 yuan, respectively. 32.13, 22.98 times Maintain an “increase in holdings” rating.

Risk warning: energy storage business innovation and technology risks; CCER policy and market change risks; incineration alternative landfill restricts the company's biogas business expansion risk; risk of changes in feed-in tariff subsidy policies; risk of accounts receivable accruing bad debts; relevant estimates are based on certain assumptions and have subjective calculation risks