Enric's earnings jumped 29% YoY to RMB569m in 1H23, 10% above our forecast. All three segments showed decent growth in operating profit.Its 34% YoY growth in value of new contracts and record order backlog will pave the way for further growth. We expect its net profit to grow 15% HoH in 2H23. The company will benefit from the weakness in steel price and the depreciation of RMB. We reiterate our BUY call with target price reduced to HK$10.04.
Key Factors for Rating
Enric's strong growth in 1H23 was mainly driven by the 20% YoY growth in turnover, mainly led by the 34% YoY growth in revenue of clean energy segment. Overall gross margin increased from 15.9% in 1H22 to 16.5% in 1H23, as the margin of all three segments improved.
The value of new orders signed grew 18% YoY to RMB12.7bn in 1H23. Clean energy segment was again the key growth driver with a 48% YoY growth in value of new orders, which more than offset the small declines of the other two segments. The value of order backlog rose 19% YoY to record high of RMB20.6bn. Again, clean energy segment was the key growth driver.
Looking ahead, we expect Enric's net profit to grow 15% HoH in 2H23. The company usually has higher output and hence sales revenue in the 2H of a year.
Its strong order backlog will provide solid foundation for further growth of the clean energy segment. The completion of more projects will also lead to stronger revenue for the liquid food segment.
The sales of its hydrogen energy products kept growing rapidly, with sales jumped 59% YoY to RMB270m in 1H23. Order backlog at end-1H23 jumped 1.2x YoY to RMB373m. Full-year sales revenue should exceed RMB700m.
We fine tune our 2023/24/2025 earnings forecasts by 1.3%/-0.8%/-0.8% after post-results adjustments. We reiterate our BUY call on the company. It will benefit from the decline in steel prices and the depreciation of RMB in the near term and the development of hydrogen energy over the longer term.
Key Risks for Rating
Weaker-than-expected sales for chemicals and environmental segment.
Lack of improvement in margin of clean energy segment.
Valuation
We lowered our target price from HK$10.89 to HK$10.04. Our target valuation remains at 1.1x PEG of the next two years with EPS CAGR now at 14.1% (down from 15.3% previously). This is equal to 14.1x 2023E P/E.