Core views
On June 13, 2023, the company announced the acquisition of 100% of Beijing Xinyi Resource Technology Co., Ltd.'s shares and related transactions. It intends to transfer 100% of Beijing Xinyi's shares held by Henan Urban Development Investment Co., Ltd. with RMB 1,311 billion in cash. As a leading enterprise in the recycling, dismantling and disposal industry, Beijing Xinyi has initially established an integrated industrial layout. In the first quarter of 2023, Beijing Xinyi achieved operating income of 434 million yuan and net profit of 351,400 yuan; since the second quarter of 2023, Beijing Xinyi's capacity utilization rate has continued to increase, and business performance has improved rapidly. As of March 31, 2023, the book value of Beijing Xinyi's net assets was 1,169 billion yuan, the assessed value by the income method was 1,311 billion yuan, and the value-added rate was 12.13%. The urban development environment will pay in cash. With the completion of the company's acquisition and integration, the business systems of the two parties have been organically integrated, and the revenue and overall profit level of the company's solid waste treatment business are expected to continue to grow.
occurrences
The company plans to acquire 100% of the shares of Beijing Xinyi Resources Technology Co., Ltd. On June 13, 2023, the company announced the acquisition of 100% of Beijing Xinyi Resources Technology Co., Ltd.'s shares and related transactions. The company plans to transfer 100% of Beijing Xinyi's shares held by Henan Urban Development Investment Co., Ltd. with RMB 1,311 billion in cash. Among them, Beijing Xinyi is a wholly-owned subsidiary of Chengfa Investment, which is controlled by Henan Investment Group Co., Ltd. along with Chengfa Environment.
Brief review
Acquire leading recycling and dismantling companies to build high-quality governance capabilities
As a leading enterprise in the recycling, dismantling and treatment industry, Beijing Xinyi has initially established an integrated industrial layout integrating online and offline, integrating recycling and dismantling, and deep processing. The ten waste power dismantling enterprises belonging to Beijing Xinyiqi are all included in the waste power disposal fund subsidy list. The total processing capacity of waste electrical and electronic products is 19.642 million units, ranking second among enterprises subsidized by funds in the country. Beijing Xinyi's enterprises have a reasonable layout, covering provinces from Heilongjiang Province to the south, along Hebei, Henan, Hubei, Hunan, and Guangdong provinces, and across the eastern and eastern parts of Jiangsu and Shanghai along the Yangtze River, covering China's main densely populated regions and consumer markets. At the same time, Beijing Xinyi built its own “easy to regenerate” Internet procurement platform and shared a recycling network with leading home appliance manufacturers to achieve an “online+offline” recycling layout. Through this acquisition, Chengfa's environmental sanitation business can achieve “two-network integration” with Beijing Xinyi's front-end recycling system. The waste incineration power generation business can obtain synergies with back-end dismantling and deep processing, thereby achieving complementarity between the utilization of high-value solid waste from renewable resource recycling and the utilization of low-value solid waste by domestic waste incineration power generation, cultivating new competitive advantages in the solid waste treatment business, and achieving a forward-looking layout of key links in the field of resource recycling, creating integrated, regionalized and systematic high-quality comprehensive environmental management service capabilities.
Waste power recycling performance has resumed, and performance promises to guarantee profit levels
In 2022, Beijing Xinyi achieved operating income of 981 million yuan, net profit of 5.7837 million yuan, and net cash flow from operating activities of 77 million yuan; in the first quarter of 2023, Beijing Xinyi achieved operating income of 434 million yuan, net profit of 351,400 yuan, and net operating cash flow of 145 million yuan. In 2022, the traditional consumer market was “cold”, total retail sales of household appliances fell year-on-year, and the waste power recycling, disassembly and treatment industry was impacted to a certain extent. At the same time, due to the epidemic, many enterprises under Beijing Xinyi experienced varying degrees of logistics restrictions, insufficient capacity utilization, etc., production and sales were low, and business performance in 2022 was at a phased low level. At the beginning of 2023, affected by the peak infection period of public health incidents, the Spring Festival holiday, etc., Beijing Xinyi's dismantling volume in January was low. Although the capacity utilization rate has increased month by month since then, business performance for the first quarter of 2023 is still in the beginning of a recovery. In the second quarter of 2023, Beijing Xinyi dismantled 1.196 million units and net profit reached 9.4785 million yuan in April; in May, the number of units dismantled reached 1.2 million units and net profit of 109.603 million yuan, and its operating performance increased rapidly. As of March 31, 2023, the book value of Beijing Xinyi's net assets was 1,169 billion yuan, the assessed value by the income method was 1,311 billion yuan, the value-added rate was 12.13%, and the transaction price of 1,311 million yuan will be paid in cash by Chengfa Environment. In terms of performance commitments, Beijing Xinyi promised to achieve deducted non-net profit of no less than 0.93, 1.26, and 153 million yuan respectively from 2023-2025, or a total of no less than 371 million yuan of deducted non-net profit for three years.
During the commitment period, if the performance does not meet expectations, Chengfa Investment will supplement the profits of the urban development environment in the form of cash; conversely, the urban development environment will not be compensated.
The scale of the incineration business continues to expand, and the potential for solid waste treatment is huge
Since 2023, Chengfa Environmental's incineration power generation projects in Huaiyang, Xixian, Kashi, Neihuang and other places have been put into operation, and the scale of waste incineration business has continued to expand.
Through this acquisition of Beijing Xinyi, the company is expected to further cultivate the competitive advantage of solid waste treatment business, enhance comprehensive environmental management service capabilities, and achieve coordinated development of waste incineration and recycling and dismantling business. At the same time, Beijing Xinyi's business performance is good, development space is broad, and profit levels are guaranteed by performance promises, which will help the company further increase its profit scale. With the completion of the company's acquisition and integration, the business systems of the two parties have been organically integrated, and the revenue capacity and overall profitability of the company's solid waste treatment business are expected to continue to grow. The company's net profit from 2023 to 2025 is estimated to be 1,349 billion yuan, 1,525 million yuan and 1,594 billion yuan respectively. EPS is 2.10 yuan/share, 2.38 yuan/share, and 2.48 yuan/share respectively, maintaining the “buy” rating.