1H23 performance is lower than we expected.
Everbright Green announced 1H23 results: revenue of HK $3.82 billion,-9.5% year-on-year, and net profit of HK $290 million,-22.1% year-on-year. Affected by the decline in construction revenue, the performance was lower than we expected.
Solid and dangerous waste plate: profits are lower than expected, shelve construction projects for the time being, and reduce capital expenditure. 1H23's revenue was HK $570 million,-15.3% compared with the same period last year, and the net loss widened to HK $120 million compared with the same period last year, which dragged down the company's profit performance: 1) at the operating end, the weak upstream recovery led to lower-than-expected production and waste volume, fierce price competition among enterprises with high costs, and reduced volume and price of solid and dangerous waste operations. 2) considering the profitability of the follow-up project, the company took the initiative to reduce the solid and dangerous waste construction project, and the construction revenue was-88.6% compared with the same period last year. The follow-up project was shelved before the end of the year, and the company expects that the capital expenditure for the whole year of 2023 will be significantly lower than the same period last year.
Biomass utilization sector: the government cooperated to reduce the cost of raw materials, and the gross profit margin increased significantly. 1H23 plate revenue of 2.46 billion Hong Kong dollars, year-on-year + 0.3% 1) Construction revenue + 26.5%, mainly from Mianzhu, Huaiyuan, Chuzhou and other projects; 2) online electricity year-on-year + 2%, steam supply + 20% year-on-year, operating income affected by exchange rate-2.8%. Thanks to the purchase of straw in cooperation with the government, the calorific value of fuel has increased significantly and the unit cost of calorific value has decreased. The domestic gross profit of the 1H23 biomass utilization sector is 25%, + 7ppt year-on-year, and the net profit is HK $620 million, + 44% compared with the same period last year.
Scenery plate: the failure rate is reduced and the power generation is improved. 1H23 wind power equipment failure rate improved compared with the same period last year, utilization hours increased, wind power generation was + 17% year-on-year, contributing HK $40 million to net profit, + 25% year-on-year. At present, the company is mainly under construction for Jiangsu Fengxian distributed photovoltaic project, a total of 11 projects are under construction and preparation stage, with a total design capacity of 27.2 megawatts.
Trend of development
The heating business has the development potential in the county market. Due to the policy restrictions on coal heating, the price of natural gas heating does not have an advantage, and the county market has a great demand for small and medium-sized biomass heating facilities. About half of the company's projects have heating capacity, and the future will focus on the intelligent energy supply model that combines biomass power generation with photovoltaic and heating. At present, it is still necessary to reduce the cost and increase efficiency in the clearance of the solid waste industry. The solid and dangerous waste industry is still in the clearing stage during the year, and in the second half of the year, the company is expected to improve its profitability by reducing costs and increasing efficiency, arranging sketch business, and cooperating with the construction of national bases.
Profit forecast and valuation
Due to the active pressure drop in the income from solid and hazardous waste construction, loose supply and demand at the operating end, and a simultaneous drop in volume and price, we have reduced the 2023 prime net profit by 53.4% to HK $330 million / HK $380 million. Due to the short-term pressure on the company's profits, but the long-term transition to a high-margin operating model, we cut our target price by 28% to HK $1.58, maintaining an outperforming industry rating, with 32% room for improvement over the current share price. The current share price is traded at 2023 7.6x/6.6x 10.0x/8.7x E in 2024, and the target price corresponds to the target price in 2023 Universe.
Risk
The amount of waste produced in the upper reaches is less than expected; the gross profit margin of the biomass plate fluctuates.