Core ideas:
Biomass and hazardous waste industries deteriorate, project profits decline, and the company's performance is under pressure in the short term, but it can still be expected in the long run. Historically, supported by excellent expansion and financing capacity, the company has achieved rapid growth in production capacity and performance, with revenue and adjusted performance CAGR reaching 29% and 20% respectively from 2017 to 2020.
With the impact of the high purchase price of raw materials in the ① biomass industry, the deterioration of the competition pattern in the ② hazardous waste industry, the decline in volume and price, and the decline in project profits of ③ projects under construction, the company's 2022H1 performance is-47.0% compared with the same period last year. However, it is expected that with the optimization of the industry pattern and recovery after the epidemic, the proportion of operating business of the superimposed company increases, and the volume of new energy business is expected, the company's long-term investment performance-price ratio is becoming prominent.
Biomass: the proportion of operating income continues to increase, pay attention to profit repair elasticity after the fall of raw material prices.
Since 2021, due to the continuous contraction of the company's biomass projects under construction, the confirmed project income has continued to decline, but it does not affect the actual cash flow. In addition, the epidemic pushed up energy prices, and the maintenance of high raw materials was the core reason for the lower-than-expected performance. 2022H1 biomass EBITDA was-24% year-on-year, but operating income was + 4% year-on-year. Looking forward to the follow-up, considering that the project has shrunk to a historical low and the subsequent profit impact is limited, the profit elasticity of the superimposed raw material price drop is prominent.
Waiting for the accelerated clearance of the hazardous waste industry, the leading advantages are highlighted, and the landscape storage layout opens the growth ceiling.
In addition, the hazardous waste industry affected by the epidemic situation of industrial enterprises, the increase in the number of industry competitors led to the deterioration of the industry pattern, the company's hazardous waste business volume and price fell. It is expected that with the resumption of industrial production after the epidemic, the clearance of small enterprises will accelerate, and the company's hazardous waste business is expected to usher in a performance inflection point. At the same time, the company is actively laying out wind, light, storage and other emerging businesses, and the company's growth limit has been opened.
Profit forecast and investment advice: the proportion of operating income increases and cash flow continues to improve. It is estimated that the company's EPS in 2022-24 will be 0.15,0.20,0.25 Hong Kong dollars per share respectively, and the corresponding PE will be 10.96,8.45,6.70 times according to the latest closing price. With reference to growth and peer valuations, it will be given 12 times PE in 2023, corresponding to a reasonable value of HK $2.34 per share, maintaining a "buy" rating.
Risk tips: the recovery of the main business is not as expected; the new business expansion is not as expected; the risk of policy change.