1H23 Revenue YoY -21%, net non-net profit +6% YoY
Energy Saving Guo Zhen released its semi-annual report. In 2023, H1 achieved revenue of 1,581 million yuan (yoy -21.30%), net profit of 188 million yuan (yoy -8.01%), minus non-net profit of 153 million yuan (yoy +5.89%). Among them, Q2 achieved revenue of 868 million yuan (yoy -26.02%, qoq +21.83%) and net profit of 134 million yuan (yoy -11.17%, qoq +143.85%). According to the company's on-hand and new orders, we lowered our operating and engineering revenue forecasts. We expect the company's EPS for 2023-2025 to be 0.54, 0.60, and 0.67 yuan respectively (previous values were 0.65, 0.72, and 0.78 yuan in 2023-2025). Comparable companies, Wind, unanimously anticipated an average PE value of 12.5 times in '23. Considering that the synergies between the company and China in energy efficiency are expected to be fully unleashed, the company was given 15 times PE in 23, with a target price of 8.10 yuan (previous value of 7.48 yuan) to maintain the “increase in holdings.”
The water operation business was steady, and the reduction in environmental engineering projects dragged down the company's revenue by business type. 23H1's water operation services/environmental engineering construction services/environmental equipment sales and service revenue was 11.21/389/049 billion yuan respectively, +4/-54/ -32% year on year. The revenue share was 71/25/ 4%, respectively, and the same as +17pp/-17pp/year on year. The water operation sector is developing steadily. Projects under construction have been put into operation one after another, and at the same time, every effort has been made to adjust the volume and price of operating water plants; the increase in the environmental engineering business sector and the decrease in stock projects have led to a decline in operating income. The gross margin of water operation/environmental engineering/environmental protection equipment was 35.7/13.2/ 34.1%, respectively, compared to -1.1/+7.0/+2.5pp. The increase in the share of water operations led to an increase in the company's gross margin of +7.1pp to 30.8%. The total number of new orders added by the company 23H1 was 1,225 million yuan, -16% year-on-year, of which operation/engineering orders were 304/731 million yuan, -41/ +4% year-on-year.
By 2025, the country will add 12 million cubic meters/day of sewage treatment capacity. On August 24, the National Development and Reform Commission and other departments issued the “Action to Raise the Level of Environmental Infrastructure Construction”. The document suggests that by 2025, the treatment and disposal capacity and level of environmental infrastructure will increase markedly, 12 million cubic meters/day of sewage treatment capacity will be added, 45,000 kilometers of sewage collection networks will be added and renovated, and the production capacity of recycled water will not be less than 10 million m3/day. Improve the price formation and charging mechanism for sewage, household waste, hazardous waste, and medical waste, and promote the improvement of the sustainable operation capacity of environmental infrastructure. Under the leadership of “high-quality development,” it is imperative to make up for shortcomings and weaknesses in environmental infrastructure and comprehensively raise the level of environmental infrastructure construction. As a leading water and water environment treatment company, Energy Saving Guozhen fully exploits the synergistic effects of the China Energy Conservation Group and is expected to benefit.
The target price is 8.10 yuan, maintaining the “increase in holdings” rating
We expect the company's EPS to be 0.54, 0.60, and 0.67 yuan respectively in 2023-2025 (previous values were 0.65, 0.72, and 0.78 yuan in 2023-2025). Comparable companies, Wind, unanimously expected an average PE value of 12.5 times in '23. Considering that the synergy between the company and China in energy efficiency is expected to be fully unleashed, the company was given 15 times PE in '23, with a target price of 8.10 yuan (previous value of 7.48 yuan), maintaining the “increase in holdings” rating.
Risk warning: New orders for environmental engineering fell short of expectations, operating costs were higher than expected, and the synergistic effects of energy efficiency between China and China fell short of expectations.