Core views
By 2023H, we achieved revenue of HK$2,981 million, a year-on-year decrease of 27.5%, mainly due to a decrease in revenue from the engineering and construction business. By 2023H, we achieved construction contract revenue of HK$997 million, a year-on-year decrease of 53.8%. Realized net profit of HK$641 million, a year-on-year decrease of 18.2%, mainly due to a decline in construction profits. As of June 30, 2023, the company has 36 signed waste incineration power generation projects, with a total daily urban domestic waste treatment capacity of 5,4540 tons. Currently, the company has 32 projects in operation, with a daily urban domestic waste treatment capacity of 42,690 tons, and the operating scale is at the forefront of the industry. Furthermore, the company's Yingkou waste incineration power generation project is the company's first project to be successfully registered on the VCS platform. The project successfully achieved a breakthrough in carbon asset development. We expect the company's net profit to be $1,457 million, $1,577 million and HK$1,709 million from 2023 to 2025, respectively, maintaining the “buy” rating.
occurrences
Yuefeng Environmental Protection Releases 2023 Semi-Annual Report
Yuefeng Environmental Protection released its semi-annual report for 2023. In 2023H, the company achieved revenue of HK$2,981 million, a year-on-year decrease of 27.5%; realized net profit of HK$641 million, a year-on-year decrease of 18.2%; basic profit of HK$0.25 per share; and payout of HK$0.049 per share.
Brief review
Project revenue has dropped sharply, and overall gross margin has increased
The company is a leading supplier of comprehensive urban environmental and health services in China. It mainly provides waste incineration power generation, smart city environmental sanitation and related services. Company 2023H's revenue was HK$2,981 million, a year-on-year decrease of 27.5%, mainly due to a decrease in revenue from the engineering and construction business. In 2023H, Company 2023H achieved construction contract revenue of HK$997 million, a year-on-year decrease of 53.8%.
In addition, garbage disposal revenue and electricity sales revenue were HK$517 and 1,219 million, respectively, up -7.15% and 0.65% year on year, mainly due to the increase in the company's disposal capacity, which boosted the increase in garbage disposal volume and electricity sales revenue; and revenue from environmental health and other services was HK$151 million, up 44.5% year on year, mainly due to the company's continued expansion of asset-light business. Company 2023H's gross margin was 38%, up 7.7 percentage points from the previous year. The increase in gross margin was mainly due to lower gross margin and a decrease in the share of construction revenue. In 2023H, the gross margin of the company's electricity sales and garbage disposal business was 46.7%, up 0.8 percentage points from the previous year; the gross margin of the construction contract business was 16.7%, up 1.8 percentage points from the previous year.
Incineration production capacity is growing steadily, and asset-light business is developing rapidly
In the first half of 2023, the company harmlessly disposed of 8.83 million tons of garbage, up 18.3% year on year; used green energy to generate 3.08 billion kilowatt-hours, up 19.4% year on year; total electricity sales volume was about 2.66 billion kilowatt-hours, up 19% year on year; as of June 30, 2023, the company had 36 signed waste incineration power generation projects, with a total daily urban domestic waste treatment capacity of 5,4540 tons. Currently, the company has 32 projects in operation, with a daily urban domestic waste treatment capacity of 42,690 tons. The scale is at the forefront of the industry. The company is actively expanding asset-light business, strengthening industrial chain integration of waste incineration and sanitation, and expanding other comprehensive smart city management services, including providing smart parking solutions. In the first half of 2023, the company provided intelligent parking solutions for more than 48,000 parking spaces, covering Guangdong, Hebei, Chongqing, Hubei, Shandong and Hunan provinces.
Successfully developed the Group's first carbon asset and maintained its “buy” rating
The company's Yingkou waste incineration power generation project is the company's first project to be successfully registered on the VCS platform. The project successfully achieved a breakthrough in carbon asset development. By avoiding landfills and replacing fossil fuels to generate electricity, the project effectively reduces greenhouse gas emissions by achieving proper disposal of domestic waste and comprehensive energy utilization. It is estimated to reduce 245,000 tons of carbon dioxide emissions every year. We expect the company's net profit to be $1,457 million, $1,577 million, and HK$1,709 million from 2023 to 2025, respectively, maintaining the “buy” rating.
Risk analysis
The risk that the capacity utilization rate of incineration power generation projects falls short of expectations: the company's incineration capacity is expanding rapidly, but it will take some time for the production capacity of new construction projects to rise.
Furthermore, the capacity utilization rate of incineration projects is affected by factors such as local waste production and collection and transportation. If the garbage production and collection situation falls short of expectations, then it may cause the company's incineration capacity utilization rate to fall short of expectations, which in turn causes the profitability of the company's incineration projects to fall short of expectations.
Risk of projects under construction falling short of expectations: The company's project construction is affected by various factors. If the construction progress of the company's projects under construction falls short of expectations due to force majeure factors, then there is a risk that the company's revenue and profit scale will fall short of expectations.