Sanitation equipment sales declined year-on-year, and Guimu's net profit was under pressure in the short term
In 2022, Yingfeng Environmental achieved revenue/net profit after deducting non-attributable net profit of 123/4.19/325 million yuan, +3/-44/ -42% year-on-year (after adjustment), and net profit of return to the mother was 48% lower than Huatai's expectations (expectations:
800 million yuan). Non-recurring profit and loss mainly includes 80 million yuan in government subsidies. 1Q23 achieved revenue/net profit of 2,67/156 million yuan, 5/+11% year-on-year. Considering the intensification of competition in sanitation services and rising costs, we lowered the gross margin forecast for sanitation services. The estimated net profit for 23-25 is 8.7/10.1/1.19 billion yuan (previous value: 9.3/1,05/100 million yuan). The corresponding EPS is 0.27/0.32/0.38 yuan. Considering the company's stable position as a leading sanitation equipment leader, we will give 26.1x PE in 2023 (with reference to comparable company Wind 2023 where the average PE value is 20.1x), the target price is 7.05 yuan/share (previous value: 5.93 yuan/ stocks), maintaining a “buy” rating.
The company's sanitation equipment sales declined in 2022, and new energy equipment is expected to drive performance growth. According to the Bank Insurance Regulatory Commission's Jiaotong Insurance data, the total number of sanitation equipment sold nationwide in 2022 was 81,800 units (-20% year-on-year), of which 5,100 new energy sanitation equipment was sold (+29% year on year), and the penetration rate of new energy was +2.3pp to 6.2% year on year. The company sold 13,700 units of sanitation equipment throughout the year, -17% year on year, but the sales volume of new energy equipment reached 1,369 units, +84% year on year, far exceeding the industry's growth rate. The company ranked first in the industry in terms of sales of sanitation equipment and new energy equipment. The gross margin of sanitation equipment was +2.2 pp to 25.9% year-on-year, and the leading position in the industry was stable. Benefiting from the new energy trend and the pilot project for full electrification of vehicles in the public sector (penetration rate target of 80% in the pilot zone), the new energy equipment business is expected to continue to drive the company's performance growth.
Revenue from sanitation services increased rapidly, and newly signed projects ranked first in the market with annualized amounts of new contracts entered and operated one after another, driving the company's sanitation service revenue in 2022 to 4.16 billion yuan; gross margin was -1.4pp to 15.4% year-on-year. The national sanitation market continues to grow. According to statistics from the Ministry of Environment, the total amount of sanitation service projects opened nationwide in 2022 was 82.3 billion yuan per year, with contracts totaling 251 billion yuan, all reaching record highs. Yingfeng Environmental added contracts with an annualized amount of 1.82 billion yuan, ranking first in the market. The total number of new contracts added was 9.25 billion yuan, and the total number of contracts pending execution was 42.7 billion yuan. The sustainable management capacity ranked among the highest. The company has built a “mechanized operation+intelligent operation+standardized service” operating ecosystem. The industry position continues to lead, and its performance is expected to grow steadily.
Operating cash flow is +105% year-on-year. The high percentage cash dividend is worth paying attention to. Due to the decline in sales in the sanitation equipment market from 21-22, the company is preparing to reduce the goodwill accrual generated by the acquisition of Zhonglian Environment by 290 million yuan in 2022. The company stepped up capital recovery efforts to speed up operating turnover efficiency. Operating cash flow in 2022 was +105% year-on-year to 1.66 billion yuan, providing a real guarantee for high-quality development. The DPS for 2022 was 0.11 yuan (tax included), and the dividend rate reached 2.42%. The company expects to distribute cash dividends of about 348 million yuan (tax included), accounting for 83% of net profit attributable to the mother for the whole year.
Risk warning: asset impairment exceeds expectations, sanitation equipment sales fall short of expectations, and the sanitation marketization process falls short of expectations.