Incident: The company recently released its 2022 annual report, achieving annual revenue of 12.26 billion yuan, +3.3% year on year (after adjustment); achieving net profit of 4.2 billion yuan to the mother, -44.4% year on year.
Seize opportunities in the new energy sanitation equipment market and lead the industry in sales. Affected by the epidemic and the macroeconomic situation, the national sanitation equipment market added -20% year-on-year insurance volume in '22. The new energy sanitation equipment market bucked the trend and increased the insurance volume +22% year on year. The total sales volume of the company's sanitation equipment was 13,743 units, -17% year on year, slightly better than the market; among them, new energy sanitation equipment sold 1,369 units. In 2022, the company's full-caliber market share remained stable, ranking first in the market; among them, the market share of new energy sanitation equipment reached 29.3%, ranking first in the new energy market. With the promotion and implementation of the new policy for the electrification of vehicles used in the utility sector, the company's new energy sanitation equipment business is expected to maintain a high growth rate in 23-25.
Assembly plants have been put into operation, the share of new energy equipment has increased, and the profitability of the sanitation equipment sector has increased. The company's assembly plant was put into operation, and some of the external components were made in-house. While improving quality, procurement costs were reduced. In addition, the company's high-margin new energy sanitation equipment grew rapidly, and structural adjustments raised the overall gross margin level. The company's sanitation equipment manufacturing gross margin increased by more than 2pct to 26% in '22. The price of lithium carbonate has dropped significantly since '23, and the company's comprehensive battery procurement costs are expected to continue to decline, driving the profitability of the new energy equipment business to continue to increase.
There are 233 sanitation service projects in operation, with an annual service amount of 5,525 billion yuan. In 2022, the company signed 88 new sanitation service projects, adding an annualized contract amount of 1,819 billion yuan, +48% over the same period last year, leading the industry. The company has 233 projects in operation, the annual service amount has reached 5,525 billion yuan, and its sustainable management capacity has continued to increase.
The company's sanitation services segment achieved revenue of 4.158 billion yuan in 2022, +37% year on year. The company's sanitation service projects are mainly concentrated in South China and East China. The government's ability to pay is strong, and the risk is relatively low. The net cash flow from the company's operating activities in '22 was 16.6 yuan, +105.5% year on year, laying a solid foundation for the company's high-quality development.
We expect the company's net profit to be 916/1059/1,357 million yuan in 23-25 (the original forecast value for 23/24 was 1,060/1,206 million yuan). The decline in profit forecasts was mainly due to the impact of the epidemic and the reduction in the size of the new market in the sanitation equipment industry; the company increased its sales efforts, market share increased significantly, and continued investment in R&D. We raised the assumptions of sales expenses ratio, management expenses rate, and R&D expenses rate. Earnings per share are predicted at $0.29/0.33/$0.43 (the original forecast for 23/24 was $0.33/0.38). According to the company's historical valuation level over the past five years, the company was given a PE valuation 22 times that of 2023, with a corresponding target price of 6.38 yuan to maintain the “buy” rating.
Risk warning
Demand for sanitation equipment grew less than expected; the increase in the penetration rate of new energy fell short of expectations; accounts receivable recovery fell short of expectations