The lower-than-expected performance of the company in 2022 is due to the influence of multiple factors such as epidemic situation and intensified competition in the industry. The competition in the solid waste market is expected to improve after the local epidemic weakens and the industry resumes work and production. The share of operating income continues to increase, and the company is seeking to lay out new carbon-neutral businesses to lead the transformation and create new growth points. We downgrade our 2022-2024 EPS forecast to HK $0.18-pound 0.39-0.45, with the current share price corresponding to PE times 5-4-4, with a target price of HK $2.05, maintaining the company's "buy" rating.
The epidemic and increased competition in the industry have put pressure on the company's performance for 22 years, but it is expected to be actively repaired in 23 years. The company expects to achieve a full-year net profit of HK $333 million to HK $389 million, a decrease of 65% and 70% compared with the same period last year. The company's performance was lower than expected due to repeated local outbreaks in China in 2022, resulting in a reduction in the amount of industrial waste in the upper reaches and an increase in collection and transportation costs; the further deterioration of the market competition pattern led to a continuous decline in the unit price of disposal; at the same time, due to the deterioration of the business environment and the slow release of state subsidies, the company plans to provide for goodwill and impairment of fixed assets of HK $0.28 billion and impairment of accounts receivable of HK $101 million. We expect that the competition in the solid and hazardous waste market will improve after the impact of the local epidemic weakens and the industry resumes work and production; as the economy recovers and the government's financial ability to pay is gradually repaired, it is expected that the problem of arrears of state subsidies will be gradually solved.
The share of operating income continues to increase, and double carbon is making efforts to seek transformational growth. The increase in disposal scale boosted the company's 22H1 operating business revenue by 10 per cent year-on-year to HK $3.32 billion, while the gradual commissioning of projects and the reduction of new projects increased the company's 2022H1 operating service revenue share by 9 pcts to 79 per cent year-on-year, and the quality of revenue was further improved. The company continues to promote the transformation of biomass comprehensive utilization business to comprehensive energy, and vigorously expand the emerging carbon reduction and new energy business. In December 2022, the company signed cooperation framework agreements with Huaiyin District, Huaian City, Jiangsu Province and Lianshui County, Jiangsu Province, respectively, based on Everbright Huaiyin Biomass Integration Project and Everbright Lianshui Biomass heating Project, layout the smart energy industry. According to the information on the company's website, in January 2023, Bishui and the company signed a strategic cooperation framework agreement in Shenzhen, focusing on the goal of "double carbon" and based on the basic principles of superior project service and market-oriented operation. to carry out cooperation in the business areas of heating, photovoltaic power stations, user-side energy storage power stations, intelligent virtual power plants, comprehensive utilization of reclaimed water and desalted water resources, and regular replacement of membrane equipment in newly built water stations and water stations that have been put into production. We believe that the company's layout in the dual-carbon field has gradually landed and is expected to become the company's new growth pole in the future.
Risk factors: higher-than-expected adjustment of subsidy policy; substantial increase in fuel collection costs; decline in volume / price of industrial waste.
Investment advice: considering the decline of industrial and commercial waste due to repeated local outbreaks in 2022, the further intensification of industry competition and the impact of impairment, we downgrade our forecast EPS to HK $0.18 in 2022 and maintain the forecast EPS of HK $0.41 in 2023-2024. The current stock price is times higher than that in 10-4-4.
With reference to the company's average of 5 times PE over the past three years, the company is given a 5 times target PE in 2023, corresponding to a target price of HK $2.05, maintaining a "buy" rating.