The scale of projects under construction is declining, and the performance in 2023 may be under pressure.
Due to the decline in construction revenue due to the decline in the scale of projects under construction and the increase in overlay costs due to the lower utilization rate of hazardous waste disposal capacity, we expect Everbright's 2023 income and return net profit to be under pressure. Taking into account the macro environment or the overall improvement, the company's revenue structure is expected to be optimized, we are optimistic about Everbright's performance in 2023. According to the scale and operation of the company's projects under construction, we adjust the project construction schedule and capacity utilization forecast, and the estimated return net profit for 23-25 is HK $43.1 billion (the previous value is HK $44.2 billion), and the corresponding EPS is HK $0.70, 0.75 and HK $0.80 million. Give the company a 23-year target of 6.7x PE (the average expected average of comparable Wind is 6.7x), and maintain a "buy" rating corresponding to the target price of HK $4.69m (previous value of HK $5.72x, corresponding to HK $6.5x PE for 23 years).
New projects continue to land to support the long-term development of performance
Since 2023, Everbright Environment and its subsidiaries have steadily promoted a series of new projects: 1) Everbright Environment has won the Guangzong County domestic waste (solid waste) incineration heating and steam supply project, which treats 400 tons of garbage per day. 2) Everbright Water (Everbright Environment Holdings 72.87%) obtained a number of projects such as the third sewage treatment plant and supporting pipe network project PPP in Shenxian County, Liaocheng City, Shandong Province, and the sewage treatment Plant (Industrial sewage) Project in Airport Industrial Park, Lianshui County, Huaian City, Jiangsu Province. The company actively distributes in the fields of environmental energy, environmental water and green environmental protection, and continues to promote new projects, including the light assets business of EPCO mode, such as the first phase of the sewage treatment plant in Jiangsu Jiangyin High-tech Zone, which is expected to support the long-term development of performance and ensure the space for growth.
The dividend payout ratio in 2022 is higher than the industry level, and cash flow continues to improve.
The dividend payout ratio in 2022 is 32.0%, which is higher than the average level of major companies in the industry (20.8%).
According to our estimates, the company's net free cash flow in 20-22 years is about HK $15.1 billion. With projects under construction coming into operation, operating income increases, capital expenditure decreases, and state reimbursement may be improved. we believe that the company's operating quality and free cash flow will be further improved. As a leading enterprise in environmental governance, the company has a leading scale in solid waste and water treatment, and its cash flow continues to improve, which is expected to usher in a revaluation.
Target price of HK $4.69, maintaining the "buy" rating
We estimate that the 23-25 return net profit will be HK $4.93 billion (the previous value is HK $54.2), and the corresponding EPS is HK $0.70 pm and HK $0.80. Give the company a 23-year 6.7x target PE (comparable company Wind consensus expected average 6.7x), and maintain a "buy" rating corresponding to the target price of HK $4.69m (previous value of HK $5.72x, corresponding to 23 years of 6.5x PE).
Risk hints: the decline in revenue from construction services is greater than expected, the operational risk of waste power generation projects, the coordinated development of solid waste treatment is less than expected, and the competition between biomass power generation and hazardous waste disposal intensifies.