Key points of investment:
Incident: The company released its 2022 annual report and 23Q1 report. 2022 revenue was 12.256 billion yuan, YOY 3.3%, net profit of the mother was 419 million yuan, and YOY -44.4%. In Q1 2023, the company's revenue was 2,671 million yuan, YOY -5.4%, net profit of the mother was 156 million yuan, and YOY 10.5%. The 22-year results were lower than expected, and the 23Q1 results were in line with expectations.
The company's 22-year performance fell short of expectations due to the decline in sanitation equipment and loss of goodwill. In 2022, the company added 295 million yuan in environmental goodwill impairment. In addition, investment income also fell from last year's profit of 241 million yuan to a loss of 41 million yuan. After deducting the main non-recurring profit and loss and impairment effects mentioned above, the company's net profit in '22 was 760 million, a slight decrease of 2.53% over the previous year.
Sanitation services continue to grow rapidly, adding the highest annualized contract amount in the industry in 2022, and the target revenue for 2023 reached 6.5 billion dollars. In 2022, the company's smart services (that is, sanitation services) revenue reached 4.16 billion, yoy +37.45%, the cumulative contract amount reached 54.2 billion, and the total number of contracts to be executed reached 42.7 billion, of which 1.82 billion new annualized contracts were added, ranking first in the industry. In Q1 2023, the company's smart service revenue was 1,229 million, or 39.60% YOY. In 2023, the company will actively explore short- and medium-term projects and strive to achieve the “cumulative contract amount of 80 billion dollars and annual revenue of 6.5 billion dollars”.
Environmental protection equipment as a whole is under pressure, and the growth rate of new energy sanitation equipment has increased markedly. Affected by the economic downturn and a brief slowdown in fiscal spending, government procurement slowed down. Total sales of sanitation vehicles in China were 82,185 units in 2022, a year-on-year decrease of 20,607 units, a decrease of 20.05%. Affected by this, the company's sanitation equipment revenue fell slightly to 6.084 billion yuan. In 2022, the company's total sanitation equipment sales volume was 13,743 units, ranking first in domestic sales for 22 consecutive years. Among them, new energy sanitation equipment sold 1,369 units, with a market share of 29.3%, ranking first in the industry. The company's new energy sanitation equipment sales rose 71% in Q1 2023, with a market share of 37.81%.
In 2022, the company invested 364 million dollars in R&D, an increase of 25.63% over the previous year. It continuously upgraded traditional products and launched new products. In terms of traditional products, first, garbage products continue to take advantage of research and development advantages based on material mechanics, leading the industry average by 35.33%; second, sweeper products relied on the advantages of the fan products of the subsidiary Shangzuan Co., Ltd. to develop second-generation pneumatic transmission systems, reducing energy consumption by 28.5% and noise below 80 decibels (industry average 88 decibels); third, based on BMS research and development of new energy vehicles, the Yingfeng energy management system was launched, which reduced the energy consumption of the sanitation vehicle itself by 20% and increased efficiency by 21% under the same operating conditions. At the same time, based on the system company's development and launch of a new product, mobile charging Cars are also very popular in Hunan and Guangdong provinces, which rank first and second in terms of prices in peaks and valleys; in terms of new products, the company focuses on new products such as photovoltaic panel cleaning, mobile charging, water waste treatment, facade cleaning, and deep sewer dredging. Using the wall washer's trackable robotic arm platform, the company has developed a new product that can track photovoltaic panel cleaning vehicles, and is making every effort to develop a full set of photovoltaic brackets/trackable stent co-orbital cleaning robots.
Maintaining the “increase in holdings” rating: Considering the intensification of competition in the sanitation service industry and the risk of uncertainty about the rate of increase in the penetration rate of new energy sanitation equipment, we lowered the company's net profit forecast for 2023-24 to 716/876 million yuan (99/1,194 million yuan before the downgrade), and the forecast for additional 2025 was 1,004 million yuan, and the corresponding 23-25PE was 23/19/17 times, respectively. Given that the company is a dual leader in sanitation equipment and sanitation services, with a stable market position and obvious synergistic benefits, it is expected that the release of new energy sanitation vehicles will further improve the company's performance and maintain its “increase in holdings” rating.
Risk warning: The increase in the penetration rate of new energy sanitation fell short of expectations; intense market competition caused sanitation expansion to fall short of expectations; risk of impairment of goodwill.