Description of the event
Zhejiang Fortune Holdings released its 2022 mid-year report. In the first half of the year, the company achieved revenue of 7.804 billion yuan, +13.1% year on year; net profit of Guimu was 657 million yuan, -49.4% year on year; net profit of non-return mother was 583 million yuan, -45.5% year on year.
Among them, Q2 revenue was 4.03 billion yuan, an increase of 2.50% over the previous year; net profit of the mother was 252 million yuan, -65.5% year on year; after deducting net profit of the non-return mother was 184 million yuan, -69.3% year on year.
Incident comments
In 2022H1, the company's hazardous waste sector had revenue of 7.37 billion yuan (YoY +13.6%), an increase of 0.5pct to 94.5%; gross profit margin was 15.8% (year-on-year -7.57pct), achieving net profit of 600 million yuan (YoY -51.7%), and a net profit margin of 8.2% (-11.1pct).
Among them, revenue from resource-based products was 7.08 billion yuan, with a gross profit margin of 15.9%; revenue from hazardous waste disposal was 289 million yuan, with a gross profit margin of 12.2%. 1) Revenue growth is related to increased project capacity utilization, increased sales volume, and overall high metal prices; 2) The gross margin and net interest rate declined a lot. On the one hand, some commodity metal prices continued to operate at a high level after a sharp rise in 2020Q2, and declined in 202H1. On the other hand, the epidemic had a certain impact on revenue collection. As a result, production capacity climbing progress of new construction projects was delayed, and prices of raw and auxiliary materials and fuel materials rose.
The gross profit margin of the 2022H1 company was 17.2%, down -7.26pct from the previous year; the cost rate for the period was 7.95%, up 0.15pct from the previous year, which was basically the same; the net interest rate was 8.49%, down 10.60 pct from the previous year. The reasons why the company's net interest rate declined more than gross margin were: 1) 2022H1 investment income - 0.08 million yuan, compared to 185 million yuan in the same period last year (of which 202Q1 converted the remaining equity investment in 2345 into transactional financial assets of 195 million yuan), the reduction in the company's equity disposal plan in 2022, and the reduction in investment income. 2) 2022H1 asset impairment loss was -129 million yuan, compared to -05 billion yuan in the same period last year. It is estimated that due to the sharp drop in copper and metal prices at the end of 202H1, the company prepared for a reduction in inventory prices for some copper inventories that were not hedged. 3) At the same time, government subsidies related to revenue were 162 million yuan in 202H1, compared to 290 million yuan in the same period last year, a decrease of 128 million yuan over the same period last year.
The net operating cash flow of 2022H1 Company was $38 million, compared to -197 million yuan for the same period last year. The net cash flow from operating activities was mainly due to a decrease in net income and expenditure of hedging margin compared to the same period last year. The net margin amount for 2022H1 futures contracts was $260 million, compared to -283 million yuan for the same period last year.
Actively deploy to seize opportunities in the clean energy equipment industry. The company's “40,000 tons/year NEV waste power battery dismantling project” has been filed. 2022H1 signed a “Strategic Cooperation Framework Agreement” with Three Gorges Construction Engineering, Huaneng (Zhejiang) Energy Development Co., Ltd., and China Resources Electric Power (Zhejiang) Co., Ltd. to establish long-term strategic cooperative relationships in the fields of pumped energy storage, conventional hydropower, nuclear power, hazardous waste treatment, and new energy.
Profit forecast and valuation: The company has a hazardous waste production capacity of 1.78 million tons and a production capacity of 970,000 tons under construction. However, due to the high investment income base in 2021, the apparent growth rate is expected to decline in 2022. The company's revenue for 2022-2024 is estimated to be 169/187/199 billion yuan respectively, an increase of 19.22%/10.9%/6.54% over the previous year; the net profit of the mother is 16.2/19.6/210 billion yuan, -30.0%/+20.9%/+7.48%, corresponding to the PE valuation of 15.1x/12.5x/11.6x. Maintain an “increase in holdings” rating.
Risk warning
1. The construction progress of hazardous waste recycling projects falls short of expected risks; 2. Competition in the industry increases the risk.