Introduction to this report:
The net profit of 2023H1 is basically the same, and the operation is steady. The scale of construction revenue continued to decline, and the balance ratio improved.
Summary:
Maintain the “increase in holdings” rating. 1) We maintain our projected net profit of HK$47.39, 49.60 and HK$5.153 billion for the company for 2023-2025, and the corresponding EPS at HK$0.77, 0.81, and HK$0.84, respectively. 2) We reaffirm: ① In the short term, the impact of fluctuations in construction service revenue on the company's overall profit expectations is gradually decreasing, and higher quality performance growth can be expected in the future. With fewer projects under construction and lower capital expenditure, free cash flow can be expected. ② From a long-term perspective, as the absolute leader in China's solid waste industry, the company's competitive strength is outstanding, and there is still plenty of room for growth. ③ After the inflection point in performance and the inflection point of free cash flow, the company is expected to usher in a revaluation and maintain its “increase in holdings” rating.
The performance was in line with expectations, and the scale of construction revenue continued to decline. 1) 2023H1 achieved revenue of HK$16.297 billion, a year-on-year decrease of 24%; attributable net profit of HK$2,785 million, a year-on-year decrease of 1%; in line with expectations. 2) The number of projects under construction decreased, causing construction revenue to drop 55% year over year to HK$4.1 billion; the share of construction revenue fell to 25%, driving a continuous increase in comprehensive gross margin. 2023H1's comprehensive gross margin increased 5.65 to 44.14% compared to 2022; and the quality of performance continued to improve. 3) The company added 2,000 tons of waste incineration projects in the first half of 2023. It is expected that subsequent construction revenue will continue to decline, and a performance inflection point is expected to occur.
The balance ratio is improving and the financial situation is healthy. 1) The company's balance ratio in 2023H1 was 65%, down 2 pct from the previous year. The company implemented diversified financing models, broadened financing channels, strictly controlled financial costs, and continued to improve the balance ratio. 2) There was HK$8.9 billion in cash at the end of the 2023H1 period, and the financial situation was healthy.
The solid waste business industry has an absolute leading position. 1) The company is currently working on a 157,200 ton waste incineration project, 2023H1 disposes of 23.87 million tons of domestic waste, and has an absolute leading position in the waste incineration industry.
2) The company's strategy focuses on high-quality development and increases the share of asset-light business; the plan is to cultivate new performance growth points in the fields of general industrial solid waste treatment, construction waste treatment, sorting and utilization of renewable resources, energy storage, photovoltaics, rural pollution control, etc., and continuous steady management can be expected.
Risk warning: Project commissioning progress or new project expansion is lower than expected, changes in industry policies, etc.