Results for the full year 2022 fell short of expectations. However, the company's revenue structure continued to be optimized, with operating revenue accounting for 50.4%, surpassing construction service revenue by the first time, driving an increase in gross margin and an improvement in cash flow. The company built a new growth pole around a collaborative dual-carbon layout and emerging businesses, and obtained 39 new projects in various fields (total investment of 5,546 billion yuan). There is still some room for growth in the future. We lowered the 2023-2024 EPS forecast to HK$0.86/0.93, added the 2025 EPS forecast to HK$1.07, and gave a target price of HK$4.30 to maintain the “buy” rating.
The full-year results fell short of expectations. In 2022, the company achieved operating income of HK$37.321 billion, a decrease of 25.2% over the previous year; net profit returned to the mother was HK$4.602 billion, a decrease of 32.4% year-on-year, converted to basic earnings of HK$0.75 per share. The dividend was HK$0.24 per share for the full year, with a dividend ratio of 32.0%. The company's 2022 performance fell short of expectations, mainly due to the slowdown in industry growth and the decline in the company's new construction projects, which led to a decline in the company's construction revenue; the Russian-Ukrainian conflict was still unresolved, causing the company to charge 590 million yuan in full goodwill impairment for the Polish project in 2022.
The share of operating revenue exceeds construction revenue for the first time, and continuous optimization of the revenue structure has led to an increase in gross margin. In 2022, the company achieved operating service revenue of HK$18.812 billion, an increase of 4.59% over the previous year. Among them, environmental energy/green environmental/environmentally friendly water operating service revenue changed +13.7%/+0.46%/+17.0%, respectively. The operating income of the Environmental Energy and Environmental Water Services business sector maintained a high growth rate, mainly due to the company's new domestic waste disposal capacity of 13,300 tons/day and water treatment scale of 190,000 m3/day. In 2022, the company achieved construction service revenue of HK$13.158 billion, a year-on-year decrease of 51.2%. Among them, revenue from environmental energy/green environmental/environmentally friendly water construction services changed by -58.1%/-25.3%/-19.7%, respectively. The company's operating revenue in 2022 accounted for 50.4%, exceeding the share of construction revenue for the first time. Continued optimization of the company's revenue structure led to a year-on-year increase of 5.5 pcts to 38.5% in 2022. The company's revenue declined in 2022. Combined with the rise in corporate bank loan interest rates and the increase in the share of operating revenue in the context of the Federal Reserve's interest rate hike, the number of project operation managers increased by 3.2 pcts to 9.3% year on year, and the management expenses rate increased 2.7 pcts to 9.8% year on year. The balance ratio declined to 67% from 68% at the end of 2021, and remained stable overall.
Traditional businesses are developing steadily, focusing on a dual-carbon layout of collaborative and emerging businesses. In 2022, in a situation where the local epidemic was disrupted and the growth rate of the industry was clearly slowing down, the company's business expanded rapidly. In 2022, the company signed a total of 39 new projects and 1 supplementary agreement for existing projects, with a total investment of about 5,546 million yuan, including 0.49 million tons/day for waste incineration, 1,248 tons/day of food waste, 1,500 tons/year of solid hazardous waste, 812,200 tons/year of steam supply, and 187,500 m3/year of water treatment, continuing to consolidate its leading position. While deepening traditional projects, the company vigorously developed scientific and technological innovation around the “double carbon” goal. Its research institute successfully achieved the transformation of achievements, and the 200-ton/day quick-loading small furnace R&D and industrialization project was evaluated as a demonstration project by the National Development and Reform Commission, providing a technical foundation for the company to penetrate the market below the county level. At the same time, the company's digital intelligence transformation has been very effective. In terms of environmental protection, it has increased investment in smart power plant topics and implemented intelligent water source management; the environmental protection sector has upgraded the operation management system and implemented intelligent water source management; the green environmental protection aspect has signed a strategic cooperation agreement with Alibaba Cloud to further lay out new energy sources field. We believe that the company's focus on reducing costs and increasing efficiency and enterprise transformation will help to enhance its competitiveness and achieve sustainable development in the medium to long term.
Risk factors: Construction and operation projects are not progressing as expected; government subsidy payments are progressing slowly; waste disposal fees are growing lower than expected.
Investment advice: Considering that the number of new projects may be lower than expected and the company's construction service revenue is slowing down, we lowered the 2023-2024 EPS forecast to HK$0.86/0.93 (the original forecast was HK$0.92/0.95), and the new 2025 EPS forecast was HK$1.07. The current stock price corresponding to PE is 4/4/3 times, respectively. The company's historical average PE over the past three years is 5 times, so we gave the company 5 times PE in 2023, and the corresponding target price was HK$4.30, maintaining the “buy” rating.